Last Updated on 10 February, 2024 by Trading System

Trading has always been a risky business. For the last few decades, the industry has been trying to give traders more control over the way they trade. One of the ways this is done is by having multiple different order types that can be used by traders to modify the way their trade is executed. A day order is one of those types.

A day order is an order that expires at the end of the current trading session. The vast majority of the orders placed in the market are day orders. This is partly because a day order allows a trader to rest easy once the session is over, knowing that the order will not be active in the next trading session. 

So, since a day order only means that the order is canceled by the end of the trading session, there are many different types of orders that fall under this category. Let’s have a look at some of them!

Day Order Types

A day order is based on duration which means that it is directly related to the GTC (Good till’ canceled) order. Unlike a day order, a GTC order stays open either until it has been filled or it has been canceled by the trader. A day order, on the other hand, will cancel itself as soon as the trading session is over.

Most of the different order types can be specified to be day orders. Here are some of the most common day order types:

Market Orders

This is when the order is sent to the market and is open until it has been filled. This means that the trader may not get the absolute price that was quoted to him/her.
Market orders are best used when you want to get in or out of a position quickly. There are other order types out there that grant you more control over how the trade is executed than a market order.

Limit Orders

A limit order is a type of day order that you can use to sell or purchase a security at a particular price. For example, a sell limit order will only be executed at a particular price or lower. Conversely, a buy limit order will only be executed at a particular price or higher.

Limit orders can be used to make sure that you only purchase a security or a commodity at a value that you think is fair. They offer the inherent advantage over a market order of being able to control the price at which the order is executed.

One of the greater disadvantages of limit orders is that they sometimes do not get filled, because price jumps over the limit level.

Stop Orders

A stop day order only sells or buys a stock when the price reaches a specific point. The best way to understand this day order is that once the price reaches the point where you set your stop-level, the stop day order instantly turns into a market day order.

So, if we are buying shares and place our stop level at $100, then we will buy at the market if the price is $100 or higher. Conversely, if we want to sell a stock and choose to place the stop level at $100, then the order will be executed if the price is $100 or lower.

Stop orders are often used in stop-losses to limit losses.

Why Use a Day Order?

A day order is usually the default order type of most brokerages. Here are some of the benefits:

The Edge Is Gone the Next Day

A day order is usually used by a trader when he or she wants to reconsider the trade if it is not executed on the same day. A good example of this would be a swing trader who has an edge in buying a stock one day after a condition has been met, but not the day thereafter. In such cases, it would be highly practical to use a day order.

Convenience

Alternatively, traders can use day orders when they do not want to be bothered with their broker for the next few days. This is quite the same benefit as the previous one, but it is worth mentioning the convenience of using day orders.

A great example of this would be a trader who is going away on vacation for a few days and does not want to be bothered by his broker while away with the family. He could place a day order to purchase a particular stock which would cancel if it is not complete by the end of the day. As such, no one will bother the trader during his vacation.

Example of a Day Order

Suppose you are looking at a particular stock in the market and you think it will yield good returns in the near future. The stock is currently trading at a price of $10.30. You can purchase 1000 shares of the stock right now, but an alternative investment that is also available to you makes it so that this investment would only be of value if the stock was priced at $10.
This is where a day order will come in handy. The specific order that you will be placing will be a limit day order. As soon as the price of the stock goes at or below $10, your broker will begin purchasing the aforementioned stock.

Your order will automatically cancel if your broker cannot fill it during the session.

Bottom Line

A day order is a duration based order. It can be used by people who are either looking for convenience or when it only makes sense to take a trade during the current session.

It is important to familiarize yourself with the various different types of day orders since they allow you to have a lot more control over the way you trade and could help you save a fair amount of money over the long run.

FAQ

How does a day order differ from a Good till’ canceled (GTC) order?

A day order expires at the end of the trading session, while a GTC order remains open until it is either filled or manually canceled by the trader. Day orders provide traders with the convenience of setting short-term trading objectives.

What is a limit order, and how does it work?

A limit order is a type of day order that specifies the maximum price (for sell orders) or minimum price (for buy orders) at which a trade should be executed. It allows traders to control the price at which they buy or sell a security.

Why should traders use day orders?

Day orders offer traders the flexibility to set short-term trading objectives and reconsider their trades if necessary. They are convenient for traders who want to avoid long-term commitments or interruptions, such as during vacations.