What is a Day-Around Order
A day-around order alters a previously placed day order with an update to either the price limit set on the trade or the number of shares.
BREAKING DOWN Day-Around Order
A day-around order combines two actions. First it cancels, or kills, an existing day order made by a trader. Second, it issues a new day order with a modified set of contingencies. By combining the two actions, the day-around order offers a trader an efficient way to update an existing day order in response to changing circumstances.
For example, suppose an investor submits a day order to purchase 500 shares of a stock at $4.25 per share, believing the price will rise during the day because of good earnings news delivered by the company a day earlier. Unfortunately for the trader, the stock opens at $4.30 and begins rising. Not wanting to be left out of the rally, the trader issues a day-around order with a limit at $4.45 for 500 shares.
Note that the day order in the above example uses a limit order rather than a market order. Even though in practical terms day-around orders modify existing orders, a trader must be able to cancel the initial day order in order to replace it. Market orders, which do not specify a price, get executed almost instantaneously unless the security to be traded lacks liquidity. Orders which place a contingency on fulfillment stand a better chance of remaining unfulfilled long enough for a trader to kill them.
Day Orders Explained
Day orders require fulfillment within a trading day. If they cannot be fulfilled for whatever reason, they get canceled after the close. The vast majority of trades made on exchanges fall into this category, including market orders, which require only that brokers fulfill them at the next available price. Even though most market orders technically fall into the day order category, unless they involve an illiquid security they stand a very low chance of going unfulfilled by the end of a day of trading.
The practical necessity for a trader to cancel an existing trade makes contingent orders of all kinds more fertile ground for day-around orders than typical market orders. Limit orders, which delineate thresholds above or below which an investor wishes a trade to take place, might be prone to day-around orders that alter the price limits based upon market activity. All or none orders, by contrast, typically involve orders requiring a large number of shares to sell at a specific price. If the broker cannot fulfill an all or none day order by market close, the entire order expires. Such an order might be subject to a day-around order reducing the number of shares required for fulfillment if market liquidity does not quite meet an investor’s needs.