[MUSIC] Over the last few videos, we have covered some of the more common types of orders that are traded in place. This includes market orders, limit orders, and stop loss orders. In this video, we will cover some other instructions a trader may add to market and limit orders. These instructions may be broadly classified into validity, quantity, and display instruction. These additional instructions are not commonly used, but are still used in significant numbers, to serve specific purposes. The first set of order instructions we will look at, are validity instructions. Under this, the first type of order with instructions is Day Order. These orders are valid only for the day on which the trader places them. If unexecuted by the end of the day on which they were placed, they are automatically cancelled. These will probably be limit orders rather than market orders, as the latter would execute almost instantaneously. Looking at other validity instructions we have others that are valid until some future date of event. These are broadly called Good 'Til orders. We have Good 'Til Cancel orders, GTC orders in short. These orders are valid until execution or cancellation by the trader, whichever happens first. They could be valid for less than or longer than a day. We then have Good Til Week, GTW, Good 'Til Month, GTM, and Good 'Til Day, GTD, orders. GTW orders are valid for the week in which they are submitted and automatically cancelled if still unexecuted at the end of the week. Similarly, GTM orders are valid for the month in which they are submitted and are automatically cancelled if still unexecuted at the end of the month. For GTD orders, they are valid until a specified calendar date after which they are cancelled if still unexecuted. In derivative markets, we have Good 'Til Expiration, GTE, orders. Unlike stocks, derivatives are finite-lived securities and expire on a specific calendar date. In these markets, you may submit orders that are cancelled on the derivative's expiration date if still unexecuted. While Good 'Til orders are valued until a specific time, date, or variant, there are orders that are valid only after a specified time or date. These are called Good After Time or Good After Date, GAT, orders. These orders may be executed only after a specified date or time. Then there are orders that may be executed only at the time the market opens or closes. We have market-on-open and market-on-close orders. Market-on-open orders are market orders that will execute when the market opens for the trading day. This order is usually used when the market opens with a call auction. Similarly, market-on-close orders are market orders that can be executed only at the closing price for the day. We then have order that will execute only if certain quantity conditions are met. Otherwise they're automatically canceled. The first of this type of orders is immediate-or-cancel orders, IOC orders. They're also called good-on-sight orders. The order must execute immediately at its limit price or better. Any unexecuted part is cancelled immediately. Given its limit price, if no part of the order can be executed immediately, then the entire order is cancelled. A slight variation of this order type is the fill-or-kill, FOK, orders. Here, the entire order must be executed immediately or cancelled in its entirety. Partial executions of FOK orders are not allowed. While partial executions of IOC orders are acceptable. While FOK orders require full execution immediately or will be cancelled entirely, we have all-or-non, AON, orders which require full execution but do not demand immediacy in execution. They will wait in the order book until the can be executed completely in a single shot. They also have minimum volume orders which require a minimum quantity to be executed, otherwise, the order won't execute. The final set of order inspections is display instruction. Display instructions typically apply to limit orders that sit in the order book awaiting executions. In such cases, other traders may be able to infer some information and create a height of the orders of the order book. This may move prices away from the orders leading to nonexecution of these order. To prevent this from happening traders may choose hidden orders or iceberg orders. Hidden orders are completely invisible in the order book and their existence is unknown unless there is a trade. Let's look at a simple example. The display best bid and offer prices are currently at 40 and 40.05 respectively. You submit a market order to buy shares, expecting it to pay at 40.05, the best asked price. However, you see that it executes at a slightly lower price of say 40.03. This suggests that there is a hidden order at 40.03. This is the only way to uncover these orders in the orderboard. A related type of order is an iceberg order. You may submit an order to sell 1,000 shares with an instruction to reveal only 100 shares at a time. Once the first 100 shares are executed completely, the next 100 shares are revealed in the order book. This continues until the order is completely executed, or cancelled. A final type of order, which does not fall into the three broad buckets of orders we have identified are spread orders. They are usually possible only on derivatives exchanges. With spread orders, you try to buy a security with a particular expiration date and try to sell a related security with a different expiration date. These orders could be any combination. These orders could be a combination of market and limit orders. An important thing to keep in mind with regards to the various order instructions, is that on most exchanges, including additional instructions or constraints, would simply delay order execution. Exchanges get first priority to orders with no conditions attached. So regular market orders and limit orders with no additional instructions would typically execute before any other type of orders. The only exception are IOC and FOK orders which by design demand immediate execution or cancellation. While deciding on whether to add any additional conditions to your order, determine if they are necessary. The trade off is that including additional instructions may get you the execution you want, but the downside is that it may delay execution. Which is more critical to you? At times, you may be better off with immediate execution whereas other times you may be better off with including additional instructions to the order. Also, while we have talked about a number of order instructions they may not all be permitted in every exchange. Make sure that you which orders are omitted and which aren't before deciding on your order submission strategy. Next time, we'll talk about the idea of liquidity and it's various dimensions. It is important to understand liquidity because it helps us better understand cost that we incur when we fail. [MUSIC]
