Day order definition

What is a day order?

A day order is defined as an instruction from a trader to their broker, to buy or sell a certain asset. Setting a day order means that the deal has to be executed if an asset hits a specified price (referred to as the level) at any point during the trading day on which the order is made.

The day order will expire if the price specified in the order is not met by the time the market closes. There are two different types of day order: stop day orders and limit day orders. If the price at which the trade will be executed is more favourable than the current market price then it is a limit day order, and if it is less favourable it is a stop day order. The meaning of day orders differ from good-‘til-cancelled (GTC) orders, or orders that specify a longer or shorter time period for execution.

Most brokers and trading platforms tend to use day orders as the default means of trading, meaning that a trade will expire if unexecuted after a day unless a different time frame is specified. For example, with IG, you can place a day order by going to the ‘order to open’ tab on the deal ticket and selecting today’s date under ‘time in force’. 

Pros and cons of day orders

Pros of day orders

Day orders are popular among traders because they mean there is no need to constantly monitor the markets, waiting for the order level to be reached. They are useful for intraday traders who will have multiple asset classes to monitor, enabling the individual orders to be executed automatically throughout the day, while still adhering to their strategy.

Cons of day orders

However, it is still important to remain up to date with breaking events that can have negative effects on the market. You don’t want to get stuck in an undesirable position if you have not cancelled your day order before it is executed.

Example of a day order

Let’s say you want to buy 1000 shares of company XYZ. They are currently trading at $5.50, but you expect the price to fall before it continues its upward momentum. Because you do not have the time to monitor the markets waiting for this advantageous dip in prices, you decide to put in a limit day order.

You place an order to buy 1000 shares at $5. If the market falls to $5, your day order is executed and you now have a long position ready for the market to rebound. But if the market does not fall to $5 in the day, your order will not be executed and it will expire.