Time In Force

What does 'Time In Force' mean

Time in force is a special instruction used when placing a trade to indicate how long an order will remain active before it is executed or expires. These options enable traders to be more specific about the time parameters surrounding a given order. This is especially important for active traders.

BREAKING DOWN 'Time In Force'

Time-in-force orders are a great way for active traders to ensure that they don’t accidentally execute trades. By setting time parameters, they can focus on finding new opportunities instead of remembering to cancel old trades. Unintended trade executions can be very costly if they occur during volatile market conditions where prices are rapidly changing.

Types of Time In Force Orders

There are several different types of time-in-force orders for traders to consider, but the availability of these order types depends on each individual broker. Some brokers only offer a limited set of order types, while those catering to active traders may have more options.

The most popular types of orders include:

  • Day orders are canceled if the trade does not execute by the close of the trading day. Often times, these are the default order type for many brokerage accounts.
  • Good-Til-Canceled orders will continue to be effective until it executes or is canceled. Some common exceptions to the rule include stock splits, distributions, account inactivity, modified orders, and during quarterly sweeps.
  • Fill-or-Kill orders are canceled if the entire order does not execute as soon as it becomes available. Often times, this is used to avoid purchasing shares in multiple blocks at different prices and ensure an entire order executes at a single price.

Some less common order types include Market-on-Open and Limit-on-Open orders, which execute as soon as a market opens; immediate-or-cancel orders that must be filled immediately or are canceled; and, day-til-canceled orders that are deactivated at the end of the day instead of canceled, which makes it easier to re-transmit the order later.

Using Time in Force

Most active traders use limit orders to control the price that they pay for a stock, which means that it’s necessary to set a time-in-force option to control how long the order stays open. While day orders are the most common type of order, there are many circumstances when it makes sense to user other order types.

Fill-or-kill orders are popular during fast-moving markets where a day trader wants to ensure that they get a good price on a trade. On the other hand, a good-til-canceled order may be a great option for a long-term investor who is willing to wait for a stock to reach their desired price point before pulling the trigger. The latter situation could involve waiting several days – or even weeks – for a trade to execute at the desired price.

Many brokers use different terminology for these order types, while other stick to acronyms like DAY, GTC, OPC, IOC, GTD, and DTC. Traders should be familiar with these acronyms and terms before getting started to ensure that they’re placing the right trades and controlling for the time that the trades remain available for execution.