Usually, when you place an order, it is valid only until it is executed or the end of the day. You can place orders specifying the exact price you want, and not the current market price. These are called limit orders. These are valid for a day.
With the Good Till Cancelled (GTC) feature, you can place these limit orders without worrying about their expiration. These orders can be valid for as long as a year. You have the option of specifying the exact validity period. But what exactly is it — GTC stock meaning — and how does it work?
What Is GTC Stock Meaning
Good ’til canceled (GTC) describes a type of order that an investor may place to buy or sell a stock that remains active until either the order is filled or the investor cancels it. Brokerages will typically limit the maximum time you can keep a GTC order open (active) to 90 days.
How Does GTC Orders Work?
GTC orders are an alternative to day orders, which expire if unfilled at the end of the trading day. Despite the name, GTC orders do not typically remain active indefinitely. Most brokers set GTC orders to expire 30 to 90 days after investors place them to avoid da long-forgotten order suddenly being filled.
Through GTC orders, investors who may not constantly watch stock prices can place buy or sell orders at specific price points and keep them for several weeks. If the market price hits the price of the GTC order before it expires, the trade will execute. Investors may also place GTC orders as stop orders, which set sell orders at prices below the market price and buy orders above the market price to limit losses.
Example Of GTC Order
Investors usually place GTC orders because they either want to buy at a price lower than the current trading level or sell at a price higher than the current trading level. If shares of a certain stock currently trade at $100 apiece, an investor may place a GTC buy order at $95. If the market moves to that level before the investor cancels the GTC order or it expires, the trade will execute.
Risks Of GTC Orders
Several exchanges, including the NYSE and Nasdaq no longer accept GTC orders, including stop orders. They have decided that such orders are a risk to investors who may see their orders executed at an inopportune time due to temporary volatility in the market. That said, most brokerage firms still offer GTC and stop orders among their services, but they execute them internally.
The risk of a GTC order comes when a day of extreme volatility pushes the price past the limit price of the GTC order before quickly snapping back. Volatility may trigger a sell-stop order as the price of a stock slips. If the price rebounds immediately, then the investor just sold low and now faces the prospect of buying high if the investor wants to regain the position.
Closing Thoughts
As a trader or investor, it is important to understand how a GTC order works so you can implement it in your trading. Not only does it provide a way for investors to manage their portfolios but it helps to protect the investor’s portfolio from extended losses when you can’t be at your computer all the time.
Now that you understand GTC stock meaning, feel free to utilize it firsthand and compare the differences between your market and GTC orders. After which, you can incorporate it into your trading plan as well as risk management strategy.
