Good Till Cancelled (GTC) order
Good Till Cancelled (GTC) order as the name suggest remains valid until it is not canceled by the investor or it expires on the close date. This order allows customers to place purchase and sell orders for which request instructions remain valid with set time intervals. The maximum validity of a Good till Cancel order is 365 days. This order may be made by an investor seeking to buy or sell a security at a certain price.
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How does the Good Till Cancelled (GTC) order work?
Good Till Cancelled (GTC) order was found to provide an alternative to the placement of day orders that expire after the market closes if they are not completed. This states that if the order is open until it is either executed or canceled. GTC request works on the instructions given by the customer to place the purchase and sale order in the given scripts until the period of time chosen for GTC orders, provided that the entire quantity has not been executed. To better understand the implementation; let’s look at the scenario below:
For e.g., if the investor has a stock valued at Rs.100 per share, but wishes to sell if the stock moves to Rs.150, then the Good till Cancelled order will stay in effect until the condition is reached unless the investor intervenes and cancels the order. If the stock reaches Rs.150 per share, under the GTC order, the shares will be sold.
If the above order was made without the execution of the GTC request before trading was closed it would have lapsed. So with the GTC instruction in effect, traders would not have to place the same order on a regular basis if they were not completed.
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The following are some features of Good Till Cancelled (GTC) order:
- In India, GTC is traded on NSE (National stock exchange) and BSE (Bombay stock exchange).
- GTC order is availed only under the Equity Cash segment. Trades under GTC orders can be settled as normal cash trades on T+2 bases.
- Market orders and stop-loss orders cannot be placed with Good till Cancel. However, Market order is allowed only with a limit price.
- Close date is a date chosen by investors out of maximum validity date i.e. 365 days to place cash orders with the GTC facility. Order validity date is selected at the time of GTC order placement and it defines the time period for which order will remain active.
- There are no limitations on Good till Cancel orders. An investor can place multiple Good till Cancel orders in a day.
GTC is available to all types of investors. Traders may use GTC orders to cut down on the day-to-day management of their portfolio.
The Risks involved in Good Till Cancelled (GTC) order?
Several exchanges no longer accept GTC orders, including stop orders. They have decided that such orders are a risk to investors who may see their orders executed at an inopportune time due to temporary volatility in the market. The risk of a GTC order comes when a day of extreme volatility pushes the price past the limit price of the GTC order before quickly snapping back. Volatility may trigger a sell-stop order as the price of a stock slips. If the price rebounds immediately, then the investor just sold low and now faces the prospect of buying high if the investor wants to regain the position.
A GTC order is a good way to handle the different stocks in a portfolio where day-to-day monitoring or trading is not always feasible. It is important to understand how a GTC order works so that it can be implemented in trading. Investors, however, have to carefully track market conditions even when using the GTC orders, so current GTC orders can be carried out without investor insight, especially if an incident unforeseen sends the stock in either direction.
Divya has completed her graduation in Bachelors of Accounting and Finance. She has worked in Deloitte Touche Tohmatsu Services, Inc. as a Research Analyst for 1 year and at JM financial as a Credit Risk Analyst for 1.3 years. She has a keen interest in learning about Financial Market. Well versed with Bloomberg, Capital Line, and Excel.