WHAT IS A Day Order
A day order refers to a specific type of order that expires at the end ot the trading day.
BREAKING DOWN Day Order
A day order is one of several different order duration types that determine how long the order is in the market before it is canceled. 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. In other words, if the trader does not execute the order on the day it was placed, the order gets canceled.
Two examples of other duration-based orders are the “good 'til canceled” order which remains active until it is manually canceled, and the “immediate or cancel” order, which fills all or part of an order immediately and cancels the remaining part of the order if it cannot be fulfilled.
Day order often serves as the default order duration on trading platforms. Therefore, the trader must specify a different time frame for the expiration of the order, or it will automatically be a day order. That said, day traders use many different types of orders when placing trades, though most are day orders.
Use of Day Orders
Short-term intraday traders commonly use day orders. Day orders can be particularly useful when used to order a security at a specific price point, so that the trader does not need to monitor the security for the rest of the day waiting for the right time to execute the order. This helps intraday traders monitor and trade multiple securities at one time, which is common practice. Before the market opens, traders analyze each individual security they trade and then place orders according to their strategies. The trader takes further action over the course of the trading day as the individual orders are executed. Intraday traders often use strategies that dictate exiting positions before the market closes. Thus, if an order is not filled by the end of the day, the trader will cancel it. Because this happens automatically for day orders, intraday traders tend to favor them.
Pitfalls of Day Orders
Day orders can be a source of stress for investors who are not professional traders. If an investor is not monitoring the price of the security during the trading day, a day limit order may take place without their knowledge. If an investor makes a day order to sell a certain security and the security experiences an unforeseen price drop, the order may be executed before the trader becomes aware of the situation, leaving the investor with an undesirable losing position in a security.