What Is a Day Order?

A day order is a type of trading order placed by an investor with their broker, instructing the broker to purchase and sell specific assets (such as stocks). It should be noted that day orders are only valid or can be executed until the conclusion of the current trading day.

The order will be executed if the asset reaches the price stated in the order. If the asset does not reach the stated price in the order, the order will be allowed to expire without further action. Orders can reach the price but not be executed due to "stock ahead".

Day orders are widespread among brokers and trading platforms and are often the default trading method.

If an investor wants an order to remain active beyond the current day trading, they must actively choose a different type of order.

Understanding Day Orders

Day orders are one of several different order duration types used to determine how long an order will be in the market before it is canceled. For day orders, that duration is a trading session. In other words, if a trader's order is not executed or triggered on the day the order is placed, the order gets canceled. Two other examples of duration-based orders are "good until canceled" (GTC) orders, which remain in effect until manually canceled, and immediate or cancel (IOC) orders, which immediately execute all or part of the order and cancel the remaining order if a portion of the order cannot be filled.

Using Day Orders

Day orders are beneficial when used to order securities at a specific price point, so traders do not have to monitor the security for the rest of the day and wait for the right time to execute the order. This helps day traders execute a common practice of monitoring and trading multiple securities simultaneously. Before the market opens, traders analyze each security they are trading and then place orders based on their investing strategies. As individual orders are executed, the trader takes further action over the trading day.

Day traders often use the strategy of deciding to exit a position before the market closes. As a result, if the order is not filled before the end of the day, the trader will cancel it. Because this happens automatically for intraday orders, day traders prefer them.

Advantages and Disadvantages of Day Orders

Advantages of Day Orders

Day orders are popular among traders because they do not need to constantly monitor the market and wait for order levels to be reached. They are helpful for day traders who need to watch multiple asset levels and can automatically execute individual orders throughout the day while still adhering to their strategies.

Disadvantages of Day Orders

However, keeping abreast of unexpected breaking events that may negatively impact the market is still essential. You will never want to get into an unwanted position if you don't cancel your day order before its execution.

Example of a day order

Suppose you want to buy 1,000 shares of XYZ Company. They are currently trading at 5.50 USD, but you expect the price to fall before it continues to rise. Since you don't have time to monitor the market waiting for a favorable price drop, you decide to place a limit day order.

You put in a limit day order to buy 1,000 shares at 5 USD. If the market drops to 5 USD, your day order will potentially be executed, and you now have a long position ready for the market to reverse. However, your order will not be filled and will expire if the market does not fall to 5 USD that day.