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What does “Time in Force” Mean? How to Execute Perfectly Timed Trades

What does time in force mean

A major difficulty that many new traders experience is getting up to scratch with all the jargon involved. There are so many different terms that you need to understand for successful trading and one question that experienced traders get asked a lot is “what does ‘time in force’ mean?” In its simplest terms, time in force refers to the length of time an order is valid. It can be for a day, week, month or year, but getting it right is crucial. Traders can implement different types of time in force orders which each provide unique potential opportunities.

In this article, we will explain in detail what time in order means, the different types of orders which traders have available, and give some examples of time in force orders working in practice.

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What does “Time in Force” Mean?

Time in force refers to the length of time a trader wants their order to be valid. When you place an order, it will have an expiry date. You can place either a “day order” or a time in force order depending on the length of time you want it to last. There are different types of orders which may be placed depending on what kind of timeframe is required from when they are executed. These all have slightly different rules but essentially they allow traders to specify how long their orders are valid for before they are cancelled.

What is a Day Order?

A day order is an instruction to buy or sell a security that will expire at the end of that trading session. If it has not been executed within this timeframe, then it will be cancelled automatically by your broker. Day orders are great for traders who want certainty over their limit price and know exactly how much they should pay when executing their trade.

Why do Traders Use Time in Force Orders?

Time in force orders can be used for several purposes, from giving the trader more control over their orders to reducing market risks. The different types of time in force order can also work together which provides even more opportunities for traders.

Some common reasons traders use time in force orders are:

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Common Types of Time In Force Orders

Good-Til-Cancelled Orders

The term “good ’til cancelled” means just what it says: The order can remain open until you cancel it yourself with your brokerage provider. These types of time in force orders allow you to keep control so that you do not need to worry about whether or not your order was filled, as there’s no expiry date. These are also useful for traders who have large orders to fill, as they can keep the order open until it has been completed.

An example of a good-til-cancelled order in action is if you want to buy 100,000 shares in Company X at the market price. You place your order knowing that it will stay open until you have all 100,000 shares.

Fill-Or-Kill Orders

Fill-or-kill instructions work by allowing you to place an order which must be executed immediately in full at a specific price, otherwise it will automatically be cancelled. This type of order works well if you know exactly what price and amount of stock you want to buy or sell but do not need any flexibility over your trade once the market moves against you. If there is insufficient volume available on the other side then your order may never get filled. This option should not be used when placing large trades because failing could leave you having to purchase a larger number of shares at a higher price.

An example of a fill-or-kill order in action is if you wanted to buy 100,000 shares in Company X stock but there were only 50,000 available at the price you specified. If your order is filled immediately then great – however if not, it will be cancelled and therefore executed at a higher cost than expected.

Market-On-Open Orders

Market-on-open orders are used by traders to buy or sell stock when the market opens, and they allow you to set an execution time that will determine exactly when your trade executes during this session. This works well for traders who want their order executed as soon as possible within the trading day but don’t need it filled straight away without any chance of slippage. There may be times where there simply isn’t enough volume available from other investors so these trades can take some time to execute completely. However, it is important to remember if someone else is willing to pay more than you then your order could get skipped over. It’s important not to use MOO orders when you want to buy or sell large quantities, as they may take some time to fill.

An example is if you wanted to buy 100,000 shares in Company X stock at the market open but there were only 50,000 available. Your order would be filled immediately with whatever was on offer but if there is high volume for that company’s shares, the order may never get executed completely.

Limit-On-Open Orders

Limit-on-open orders are similar to market-on-open trades but allow traders more control over the price at which an order will be executed. This can give traders a chance of getting their trade filled before it’s expired if there isn’t sufficient volume available within the trading session itself. This works well for traders who do not want unplanned slippage. If there are not enough buyers and sellers who come into the market then your limit order could remain unfilled until another day when prices might have changed again. It is usually better not to use LOO orders for lower volumes because these types of trades can sometimes take a lot of time to fill.

An example is if you wanted to buy 100,000 shares of Company X stock at the market open but there were only 50,000 available. You could set your limit order somewhere around the current price so that it won’t be executed above this level if more volume comes into play within an hour or two after opening time.

Immediate-Or-Cancel Orders

Immediate-or-cancel orders are commonly used by traders who want their order executed as soon as possible, but will not be concerned if it’s split up into smaller chunks over the trading day. This means that your trade may get filled in two separate parts which can leave you exposed if there isn’t enough volume on either side of the market. This is because the more investors involved, the better chance you have of getting your full order completed. It’s important to try and use IOCs for lower volumes because these types of trades can take a long time to complete without other investors helping them along.

An example is if you wanted to buy 100,000 shares in Company X stock but only 50,000 were available. Your order may get executed immediately and then again at a later point during the trading day. However, if it’s not filled by the end of the session it will be cancelled automatically after that time.

Day-Til-Cancelled Orders

Day-til-cancelled orders allow you to keep an order open for a specific period of time without needing to manually cancel it. This means that your trade will not expire until the set date has passed unless another trader is willing to take on the responsibility for you. It’s important not to use DTCs when there isn’t much volume available because these types of trades can also take some time before they are completed; once again, if someone else is willing to pay more than you then your order could get skipped over completely.

An example is if you wanted to buy 100,000 shares in Company X stock but only 50,000 were available. You could set your DTC order for a certain amount of time – say until the end of next week or whenever there is more volume coming into play within this period. This will help to ensure that you get your full order completed, but it could also mean that you will be exposed to any short-term fluctuations in the price.

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How to Use Time in Force Orders Effectively

With so many different types of time in force orders that can be used to help execute trades more effectively, the key thing is to make sure how much volume there will be when your order gets executed. If you use time in force orders when there isn’t much volume available, this will give other investors the chance to pick up your trade at a better price, and it could end up taking longer than expected or not happening at all depending on how quickly everything gets filled.

It’s also important not to use time in force orders unless the market conditions are right because you might end up losing control of your money. For example, if you were hoping to buy 100,000 shares of Company X stock but only 50,000 are available then setting your limit order somewhere around the current price could help it get filled more quickly. However, if there isn’t enough volume for this trade then it may not be completed until another day where prices might have changed again. Always pay attention to the markets and act accordingly.

Using apps and software to set up time in force orders can make it easier for you to set specific expiration dates on each transaction without needing changes every single day. This can be a very useful strategy if you know what you’re doing and want to take advantage of different types of orders.

What are Other Useful Orders for Traders? 

Some other types of orders can be used to help traders get more out of their investment, whether this is during the day or even overnight. These include:

Stop-Loss Orders

If you’re worried about your trade moving in an unwanted direction then setting a stop-loss order could help prevent any further losses from happening. Stop-loss orders are useful when you want to cut your losses short before they go too far, but it’s important not to leave them open for extended periods of time.

Market Orders

A market order is a good choice if you are only looking to get the best price possible right now because this will never set any limits on how much you can spend. It can also be used when there isn’t enough volume available in comparison with what traders need. However, you might still end up paying higher prices or getting lower rates depending on the current conditions and activity within the markets. Making sure everything is working in your favour can take some trial and error until you find something that suits your trading style.

Limit Price Orders

A limit price order helps you set what type of return you would like before completing any transactions. This can be a useful strategy if you know what kind of price point will help to make the trade more successful.

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To Sum Up

At its simplest, effective trading is all about impeccable timing and that is why the question “what does time in force mean?” is so important. By using time in force orders, you can improve the chances of getting more out of your trades and not leaving anything to chance. Having different types of time in force orders means you can choose what will work best for each trade, so keep this in mind when setting up new transactions or making changes to existing ones.