What is a 'Day Order'

A day order is an order to buy or sell a security that automatically expires if not executed on the day the order was placed. If it is not filled, it is canceled, and it is not filled if the limit or stop order price was not met during the trading session. It is one of several different order duration types that determines how long the order is in the market before it is canceled.

BREAKING DOWN 'Day Order'

For example, a good 'til canceled (GTC) order remains active until it is manually canceled, while an immediate or cancel (IOC) order fills all or part of an order immediately and cancels the remaining part of the order.

Many trading platforms have day orders (often appearing simply as "day") as the default order duration. Unless the trader specifies a different time frame for the expiration of the order, any order to buy or sell a security is a day order by default. These orders are only good during the current trading day and are automatically canceled at the end of the day if they have not been filled yet. Most trading platforms support a wide variety of duration types, including those that are based on an action (such as Fill-Or-Kill) and a duration that is based on a specified time period — one, three or five minutes.

Use of Day Orders

Day orders are more commonly used by short-term intraday traders. They are typically used by traders to place an order for a security at a specific price point so the trader doesn't have to monitor it for the rest of the day until it is executed, if it is executed at all. Intraday traders usually monitor and trade multiple securities at one time. Prior to the market open, traders analyze each individual security they trade and normally place orders according to their strategies. The trader takes further action as the individual orders are executed over the course of the trading day. For intraday traders, most strategies dictate that positions are exited at or before the market closing. Thus, all orders that were not executed are cancelled. This happens automatically for day orders.

Pitfalls of Day Orders

For the investors or traders who are not professionals and don’t sit in front of a quote monitor screen all day, placing a day order may create a dilemma. For example, if a day limit order is place at the beginning of the trading day and some unforeseen event takes place that may have unfavorable effects on the price of the security, the order may be executed before the investor or trader becomes aware of the situation. The investor or trader may then be stuck with an undesirable losing position in a security. The professionals who are constantly monitoring markets are quick to react and cancel all orders accordingly.

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