Definition
A day order is an instruction given to a broker or trading platform to buy or sell a security that is only valid for the current trading day. If the order is not executed within the same day, it will automatically expire and be canceled. This type of order is the default setting for most stock exchanges and is typically used by traders to take advantage of short-term price movements.
Examples
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Buying Stock: An investor places a day order to buy 100 shares of XYZ Corporation at $50 per share. If the stock reaches $50 within the trading day, the order will be executed. If it doesn’t, the order will expire at the end of the trading day.
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Selling Stock: A trader places a day order to sell 50 shares of ABC Inc. at $30 per share. If the market price touches or exceeds $30, the shares are sold. If not, the order is canceled at the end of the trading day.
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Limit Orders: A day order can also be a limit order. For instance, an investor wants to purchase shares of DEF Ltd. but only if the price falls to $25 or lower. They place a day order with a limit price of $25, ensuring the order expires at the end of the day if not filled at or below $25.
Frequently Asked Questions (FAQs)
Q1: What happens if my day order isn’t executed?
If your day order isn’t executed by the end of the trading day, the order is automatically canceled and your planned transaction does not occur.
Q2: Can a day order be changed to a good-till-canceled order (GTC)?
Yes, most brokerage platforms allow you to modify the type of your order. You will need to cancel the day order and place a new GTC order.
Q3: Is there an extra fee for a day order compared to other types of orders?
Typically, there are no additional fees for placing a day order. However, fees and commissions depend on your broker’s policies.
Q4: Are day orders effective in after-hours trading?
No, day orders are only effective during the regular trading hours of the stock exchange.
Q5: Can day orders apply to other types of investments besides stocks?
Yes, day orders can be applied to other markets, including options, futures, and Forex, depending on the broker’s offerings.
- Good-Till-Canceled Order (GTC): An order to buy or sell a security that remains active until the order is canceled or executed.
- Limit Order: An order to buy or sell a security at a specific price or better.
- Market Order: An order to buy or sell a security immediately at the best available current price.
- Stop Order (or Stop-Loss Order): An order to buy or sell a security once the price reaches a specified level.
Online References
Suggested Books for Further Studies
- “Stock Market Orders Made Simple” by Ross Cameron
- “Investing For Dummies” by Eric Tyson
- “Day Trading For Dummies” by Ann C. Logue
- “Trading for a Living” by Dr. Alexander Elder
- “The Intelligent Investor” by Benjamin Graham
Fundamentals of Day Orders: Finance Basics Quiz
### What is a day order?
- [ ] An order to buy or sell securities that lasts any number of days.
- [x] An order to buy or sell securities that expires unless executed or canceled the day it is placed.
- [ ] An order that only large institutional investors can place.
- [ ] A type of order that automatically converts to a market order at the end of the day.
> **Explanation:** A day order is a type of order that expires at the end of the trading day if it is not executed. It is used by investors to take advantage of price changes within the same trading day.
### What happens to a day order that is not executed by the end of the trading day?
- [x] It is automatically canceled.
- [ ] It remains in the system for the next trading day.
- [ ] It is converted into a market order.
- [ ] It is put on hold until the investor reactivates it.
> **Explanation:** If a day order is not executed by the end of the trading day, it is automatically canceled and will not carry over to the next trading day.
### What type of order remains active until it is canceled or executed?
- [ ] Day Order
- [x] Good-Till-Canceled Order (GTC)
- [ ] Market Order
- [ ] Trailing Stop Order
> **Explanation:** A Good-Till-Canceled Order (GTC) remains active until it is either canceled by the investor or executed. Unlike a day order, it does not expire at the end of the trading day.
### Which of the following is not affected by the expiry of a day order?
- [ ] Limit Order
- [ ] Stop Order
- [x] GTC Order
- [ ] All of the above
> **Explanation:** A GTC Order (Good-Till-Canceled Order) is not affected by the expiry of a single trading day because it remains active until canceled or executed, unlike day and limit orders which are affected by the day's end.
### Are additional fees typically associated with placing a day order?
- [ ] Yes, always.
- [ ] Yes, but only for institutional investors.
- [x] No, typically there are no additional fees.
- [ ] No, but only if placed during after-hours trading.
> **Explanation:** Typically, there are no additional fees specifically associated with placing a day order. However, fees and commissions can vary by broker.
### Can a day order be placed for securities other than stocks?
- [x] Yes, day orders can be placed for other types of securities like options, futures, and Forex.
- [ ] No, day orders are exclusive to stock trading.
- [ ] Only if approved by the stock exchange.
- [ ] None of the above.
> **Explanation:** Day orders can be placed for other types of securities such as options, futures, and Forex, depending on the broker's offerings.
### Which order type ensures that an order is executed immediately at the current market price?
- [x] Market Order
- [ ] Day Order
- [ ] Limit Order
- [ ] Stop Order
> **Explanation:** A market order is an order to buy or sell a security immediately at the best available current price. It is designed to execute as quickly as possible.
### When is a day order effective?
- [ ] During pre-market trading hours only.
- [ ] During after-hours trading only.
- [ ] During any trading hours across a 24-hour window.
- [x] During regular trading hours only.
> **Explanation:** A day order is effective only during the regular trading hours of the stock exchange and is not applicable during pre-market or after-hours trading.
### Can a day order be changed or canceled after it is placed?
- [x] Yes, as long as it hasn't been executed.
- [ ] No, it cannot be changed or canceled.
- [ ] Only if the price changes significantly.
- [ ] Only if the broker allows it.
> **Explanation:** A day order can be changed or canceled as long as it hasn't been executed. This provides flexibility for investors to adjust their strategies.
### What is the primary benefit of using a day order?
- [ ] It guarantees execution at the best possible price.
- [x] It allows traders to take advantage of short-term market movements.
- [ ] It reduces broker fees.
- [ ] It ensures long-term investing success.
> **Explanation:** The primary benefit of using a day order is that it allows traders to take advantage of short-term market movements. It is particularly useful for day traders looking to capitalize on intra-day price fluctuations.
Thank you for exploring the comprehensive details of day orders in securities trading and for challenging yourself with our educational quiz. Keep expanding your knowledge in finance and investing!
