Timing Trades: Time Parameters and Qualifiers on Stock Orders
When you're buying or selling stocks, there are a lot of decisions to make.
After you determine what stock you want to buy or sell, how many shares you want to trade and the kind of order you want to place, you'll have to figure out whether you want to place any special constraints on the execution of the trade.
Below is a list of the most common time parameters, known as “time-in-force options,” and a few other common order qualifiers that allow you to give your brokers specific instructions about how to execute your order.
Time in Force
Depending on the type of order you place, there may not be buyers or sellers available to trade at the price you want right away. So, as an investor, you need to tell your broker how long he or she should keep trying to execute your order.
Day Order: This is the simplest type of time-in-force option. It simply means that your broker can keep trying to fill your order over the course of the current trading day. You'll have to specify if you want the trade to be active during extended trading hours — i.e., after the end of regular trading hours at 4:00 p.m. Eastern Time.
Trading during extended trading hours might not be available for all order types, and caries special considerations (e.g., the risk of lower liquidity and the risk of higher volatility).
Market On Open/Close: A Market-On-Open (MOO) order allows you to specify that you want to buy shares at the 9:30 a.m. open. It can be placed as a market order or as a limit order. Any part of your order that can't be filled at the opening price will be canceled.
Similarly, a Market-On-Close (MOC) order simply tells your broker to place your order as close as possible to the 4:00 p.m. close. You'll want to check with your broker though. These orders generally must be placed a certain amount of time before the close — and after that time, they typically can't be modified or canceled.
Good 'til Canceled: This time-in-force option is exactly what it sounds like. When you place a good-'til-canceled (GTC) order, your broker will keep trying to execute that order indefinitely, unless you tell him or her to stop by canceling the order.
You can specify a date to cancel the trade when placing the order or you can cancel it later on. This doesn't go on indefinitely though — brokerages typically set a limit on how many days these orders can be active. Often, that date is many months from the time you place your order.
Fill or Kill: This is simple: Execute my entire order immediately, or don't do it at all. With other types of orders, a broker might buy or sell the portion of the order that is available and achieve what is known as a partial fill. A fill-or-kill order tells the broker to execute all of the order immediately or nothing.
Immediate or Cancel: This option could also be called “take what you can get,” since it instructs brokers to fill as much of an order as they can right away. If there aren't enough shares available immediately at the right price, the remainder of the order gets canceled.
All or None: An all-or-none order is the more relaxed cousin of the fill-or-kill. All-or-none orders prevent brokers from partially filling orders, but they don't have the immediacy of a fill-or-kill order. Brokers will keep trying to fill your entire order until you cancel the trade.
Order Qualifiers
Beyond time qualifiers, there are even more specific instructions you can set when buying or selling stock. Here are a few of the most common:
Minimum Quantity: This qualifier tells your broker that you only want to trade if you can buy or sell at least a certain number of shares.
Do Not Reduce: Companies that pay cash dividends have to pull together a list of shareholders of record before they pay out that dividend, and an ex-dividend date is established. People who hold the shares before that date will get the dividend. For trading that occurs on that date or after, that dividend goes to the seller.
To offset that extra income, brokers will automatically reduce the limit price on all open limit and stop-limit orders by about the amount of the upcoming dividend payment. A do-not-reduce order indicates that the investor wants to keep the trigger price they've chosen, no matter what.
Non-directed: Many stocks these days trade actively on a number of exchanges and venues, with different price quotes and order sizes available across that spectrum of venues. For the casual investor, it can be difficult to know which venue would get you the best price at any given time.
Many retail brokers will make an order's default status “non-directed,” which leaves it up to the broker to make that decision for you and to route it to the venue or exchange on which they believe the order could be executed with the best terms.
Directed: More active traders might choose to be more hands-on in determining on which venue or exchange their order is executed. To do so, they can route or “direct” their order to a particular venue. Doing so means that the investor is taking responsibility for the execution price, however, and may not receive the best available price across all the markets.
