A lot of clients ask me why I always use Day Only (DO) orders when buying or selling stocks, and not Good ‘Til Cancelled (GTC) orders. After all, if I’ve set a price and the market comes to me when I’m away from my desk, I might miss an opportunity…
Fair enough.
I certainly don’t say that no one should ever use GTC orders. For people who don’t spend as much time watching these things as I do—especially if they’re investing in larger, less volatile companies—GTC order can work out just fine.
Note: calls and puts can be another way to set a price and leave one’s bid/offer on the table for longer periods of time.
My problem with GTC orders is that things can change faster than we can yank orders we no longer wish to have filled.
Among the highly-volatile juniors I usually speculate on, seriously bad news can cause a stock to crater in seconds. GTC bids to buy would be filled on shares in a company that has just become a much worse investment. If the news is bad enough and there are no buyers once it spreads, investors who got filled on GTC orders could find themselves unable to sell. A total loss of capital is possible in such a worst-case scenario. But even in a less fatal scenario, major loss of capital may result, with no possible way to prevent it.
On the flip side, if I’m looking to sell, and leave a high ask on the table, game-changing good news could result in me selling shares I’d now want to keep.
Major changes in value propositions can literally happen during the span of a lunch, or walking the dog in the park, etc.
This is the main reason I use DO orders. But I also often change my orders during the course of the day. If, for instance, I’m trying to buy a silver stock and I see that silver is dropping fast, I might revise my bid downward. Or the reverse.
Sometimes I see that shares sell for much less than I was willing to pay at the open, so I set a lower bid. But then the price moves up and it starts getting away from me. If the underlying commodity is rising as well, I may raise my bid. Often I can buy this way at a price lower than I would have gotten had I left a GTC bid on the table. And the reverse is true as well.
I’m not a day trader. I buy and hold until the company I’m speculating on delivers on the basis for my speculation—or fails to do so.
But when it comes to buying and selling, I do like to have as much control over the process as I can get. I watch the bid-ask spread. My full-service broker can tell me how many orders are ahead of me and at what prices. I consider this, look which way the momentum seems to be going, and place—and change—my orders accordingly.
One more thing…
Strange things often happen in the last few seconds of the trading day; low bids and high asks may be filled.
It seems that there are sometimes brokers out there with instructions to buy or sell that must be filled by a given deadline. The broker will try to get the best price possible until the deadline, but at the end of the day, any offer on the table is accepted.
With this in mind, I often revise my DO orders in the last few minutes of trading, just to see if I can get lucky in the last seconds.
Usually, I must admit, I don’t.
I then watch what happens to the story overnight and the market activity in the morning. Then I place new DO orders.
But sometimes it works out, and in a few minutes, I find my orders filled at better prices than I truly expected.
Remember that I don’t say that everyone should do as I do. It’s just that I get asked this often enough that I thought it worth putting my take on this on the record in this article.
As always…
Caveat emptor,
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