What Is a Time-of-Day Order?
The term time-of-day order refers to a type of trade that allows an investor to request a specific time of day to have an order filled. Time-of-day orders can be executed for either buy or sell requests for stocks or other types of financial instruments. Timing is very important when it comes to buying and selling stocks, including the time of day, so it's very important that investors understand when to execute their orders. Time-of-day orders can help traders who want to buy or sell assets based on information they believe will influence prices at certain times.
Key Takeaways
- A time-of-day order is a type of trade that allows an investor to request a specific time of day to have an order filled.
- These kinds of orders can be executed for either buy or sell requests for stocks or other financial instruments.
- Time-of-day orders can help investors who want to trade on the specific information they believe will be revealed at a certain time.
- Whether an investor can make a time-of-day order depends on the rules of the specific exchange or market where they trade.
- Time-of-day orders can often be paired with other order types, such as an immediate-or-cancel order.
How Time-of-Day Orders Work
A time-of-day order is a kind of order type or a request to buy or sell a stock, bond,or another financial instrument. This type of order is one that comes with specific instructions as to the time period during the trading day when the investor wants it to be executed. This is an especially useful strategy for day traders and other investors who want to time their entry or exit into a stock or other financial instrument.
Time-of-day orders are strategies that often appeal to investors who trade on certain information that may be revealed at a specific time. For instance, let's say you expect a government announcement is on the horizon stating that the economy shrank in the previous quarter. You may place a time-of-day order to buy Treasury bills (T-bills) if you believe that investors will react to the bad news by fleeing to the safety of government bonds.
The types of orders that exchanges offer investors are important, yet average investors don’t always understand the implications of certain market structures. For example, the advent of high-frequency trading brought attention to different order types (such as hide not slide) that were made available to algorithmic traders.
Whether or not a trader is able to make a time-of-day order depends on the rules of the specific exchange or market in which they trade. As such, traders may be able to make other kinds of order types, such as limit orders, stop orders, and stop-loss orders.
Critics claim that high frequency trading give high-frequency traders an unfair advantage.
Special Considerations
Time-of-day orders can often be paired with other order types. For instance, it may make sense to pair the time-of-day order with an immediate-or-cancel (IOC) order. An immediate-or-cancel order asks that only the part of the order which can be filled is filled and the rest be canceled. The IOC order is commonly executed for large orders. This can protect you if you believe that part of your order will be filled at a higher price later on.
Example of Time-of-Day Orders
Here's a hypothetical example to show how time-of-day orders work. Let’s assume that you want to buy Apple (AAPL) stock because you believe that the recently released iPhone is more popular than either the company or analysts predict. You believe that when Apple releases its iPhone sales data the following day, the stock will jump significantly in price. Because Apple’s announcement is scheduled for tomorrow at 2:00 p.m., you place a time of day order for 1:59 p.m.
As mentioned above, it may be a good idea to place an IOC order in this case. This is especially true if you expect Apple stock to spike after 2:00 p.m. Doing so would prevent you from having some of your orders filled at a higher price than you filled earlier.
