Trading Terms: Time Parameters and Qualifiers on Stock Orders
When buying or selling stocks, you have a lot of decisions to make. After first determining 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 include any special constraints or instructions on the execution of the trade.
These qualifiers can have important consequences for your order, so it’s important to understand their differences. Read on to learn about the most common time parameters, known as time-in-force options, and a few other common order qualifiers that allow you to give your brokerage firm specific instructions about how to execute your order.
Time in Force
Depending on the type of order you place, there might not be buyers or sellers available to trade at the price you want right away. So, as an investor, you need to provide parameters around the timing of your order’s execution.
Day Order: This is the simplest time-in-force option and means that your firm can keep trying to fill your order throughout 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 p.m. ET.
Trading during extended trading hours might not be available for all order types and comes with its own potential risks, such as lower liquidity and higher volatility.
Market on Open/Close: A market-on-open (MOO) order allows you to specify that you want to buy or sell shares at the 9:30 a.m. ET open. These orders generally must be placed at least two minutes before the open, and they typically can't be modified or canceled after that time. Any part of your order that can't be filled at the opening price will be canceled.
Similarly, a market-on-close (MOC) order means you want your order to be executed as close as possible to the 4 p.m. ET close. These orders generally must be placed at least two minutes before the close, and they typically can't be modified or canceled after that time.
Limit-on-open and limit-on-close orders operate similarly to MOO and MOC orders, except they don’t get filled unless the opening or closing price is within the limit price you specify.
Good 'Til Canceled (GTC): When you place a GTC order, your brokerage firm will keep trying to execute that order for a set amount of time unless you tell them to cancel it before then.
You can specify a date to cancel the trade when placing the order, or you can cancel it at a later time. This doesn't go on indefinitely—brokerage firms 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 (FOK): With this approach, your firm will execute your entire order immediately or not at all. With other types of orders, the firm might buy or sell only the portion of the order that’s available and achieve what’s known as a partial fill. An FOK order eliminates that possibility.
Immediate or Cancel (IOC): This option could also be called “take what you can get,” since it serves as an instruction to fill as much of your order as possible right away. If there aren't enough shares available immediately at the right price, the remainder of the order is canceled.
All or None (AON): AON orders prevent partial filling of orders, but they don't have the immediacy of an FOK order. Instead, your firm will keep trying to fill your entire order until you cancel it or it reaches the expiration date set by the firm, if any.
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 means that you only want to trade if you can buy or sell at least a certain number of shares.
Do Not Reduce (DNR): When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend. Then an ex-dividend date is set, typically one business day before the record date. The price of a stock may fall by the amount of a cash dividend on the ex-dividend date.
To offset this, firms will automatically reduce the limit price on all open limit and stop-limit orders by about the amount of the upcoming dividend payment. A DNR order allows you to specify that you want to keep the trigger price that you’ve chosen, no matter what.
Non-Directed: Many stocks trade actively on several exchanges and venues, with different price quotes and liquidity available across those venues. For the casual investor, knowing which venue would get you the best price at any given time can be difficult.
Many brokerage firms make an order's default status “non-directed,” which leaves it up to the firm to route your order to the venue or exchange where they believe the order can be executed with the best terms. FINRA provides centralized access to reports that can help you learn more about the order routing practices of the firm(s) you use.
Directed: If you’re a more active trader, you might choose to be more hands-on in determining the venue or exchange where your order is executed. To do so, you can instruct your firm to route or “direct” your order to a particular venue. However, this means you, the investor, take responsibility for the execution price and might not receive the best available price across all markets.
Learn more about investing in stocks.
Updated on 7/17/24
