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A stock brokerTrading securities online entails using specialized lingo so that your precise intentions are carried out. One key term that you should be familiar with, whether you are an active trader or someone who trades less frequently, is “time in force” (TIF). Time in force is a measurement of how long an order will remain active before it’s executed by your broker or it expires. It can give you control over the timing of the trade orders you place when buying and selling securities. For hands-on assistance with your investing needs, consider enlisting the help of a trusted financial advisor.

Time in Force, Explained

When placing orders, it’s important to consider how long you want that order to remain open before it’s filled or it expires. Time in force orders allow you to put time limits on how long each order you place remains active.

Using time in force orders can make managing trades easier, especially if you’re an active trader. Setting time limits for trades can help you avoid having them executed beyond a certain cutoff. That’s a plus because you wouldn’t have to go in and cancel existing orders one by one. You also wouldn’t have to worry about trades being executed accidentally.

This can offer some insulation against potential losses if you’re trading during periods of increased market volatility. While you can’t control wide price swings in stock prices, you can control whether trades associated with those stocks are executed or not using time in force orders.

Types of Time in Force Orders

There are different ways to use time in force orders in your investment strategy. For example, you could choose from one of the following options:

Day-only order (DAY) – This is an order to buy or sell a security that’s good only for the current day’s trading session. If you place a day order and it’s not executed by the close of the trading day, then it’s automatically canceled. Day-only orders are useful if you want to trade a security at a certain price point without having to monitor its price throughout the trading day.

Fill or kill order (FOK) – This kind of order has essentially two outcomes: either fill the entire order immediately or cancel it. You might use this type of time in force order if you trade more actively or at a higher volume. The goal of this type of order is to help you complete a larger trade at a specific price point, rather than buying shares of the same security at different prices.

Retail investor at his PCGood until canceled order (GTC) – This type of order lets you to direct your broker to buy or sell assets at a set price until you specify that the order should expire. Your brokerage may give you a certain window in which to execute or cancel these orders, which can last 30 to 90 days. You may use this type of time in force order if you want to hold out for a specific price on a security before executing a trade. If the security never hits that price, you can cancel the order or wait for it to expire.

Immediate or cancel order (IOC) – These are similar to fill or kill orders but with one key difference. With fill or kill, the order must be canceled if the entire order can’t be filled right away. With immediate or cancel orders, the part of the order that can be filled immediately is filled. Any remaining shares would then be canceled.

Good until date order (GTD) – These let you specify a certain date for executing an order or allow it to expire. This gives you a little more certainty over when the order will end, versus a good until canceled order. If you’re day trading through an online brokerage, your broker may specify which types of time in force orders you’re able to set.

How to Use Time in Force Orders

Time in force orders can be combined with other types of orders to manage your investment strategy. For example, you can use them with:

  • Market orders
  • Limit orders
  • Stop orders

A market order is an order to buy or sell a security at the best available price. Most market orders are typically day-only orders since the goal is typically executing the trade as quickly as possible at the most favorable price. If you’re day trading in a brokerage account, day-only may be your default time in force order setting.

Limit orders are also orders to buy or sell, but with one caveat: In order for the trade to be executed, it has to be at a specific limit price or better. Buy limit orders usually direct your broker to purchase a security at or below the current market price. Sell limit orders direct your broker to sell securities at or above the current market price. A fill or kill order is a type of limit order, since you’re essentially telling your broker to fill the order immediately at a set price or to cancel it entirely.

Stop orders let you direct your broker to buy or sell securities once they’ve reached a specific stop price. Stop orders can be combined with good until date orders or other time in force orders as a way of managing price volatility.

The Bottom Line

Woman uses her PC to make stock tradesRegardless of which time in force orders you decide to use, the purpose is more or less the same: allowing you to monitor the markets, rather than requiring you to focus on your trading activity. By setting specific end dates for trades, you don’t have to worry about trades going through outside of the particular time frames you set. This can be helpful if you’re actively trading and tracking the movements for a wide variety of securities each day.

Tips for Investing

  • Consider talking to a financial advisor about whether time in force orders are something you should be using with your investment approach. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with fully vetted advisors in your local area in minutes. If you’re ready then get started now.
  • If you don’t have an online brokerage account yet, you may want to consider opening one. When comparing online brokerages, pay attention to the range of investments offered, the commissions or other fees you’ll pay to trade and the account minimums required. You should also check to see what time in force options are available if you plan to use them.

Photo credit: ©iStock.com/g-stockstudio, ©iStock.com/simpson33, ©iStock.com/marchmeena29

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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