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What Does Day Immediate And Minutes Validity Mean

26 Jul 2023

Introduction

In the fast-paced world of stock trading, timing is everything. When you place an order to buy or sell a stock, it's crucial to understand how long that order remains active in the market. That's where order validity comes into play. But did you know there are different types of validity? 

If you're curious to discover how each type works and which one suits your trading style, keep reading. 

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What is day validity?

A day validity, also known as a day order, refers to an order placed by an investor that remains valid only for a single trading day. The transaction takes place if the order matches the specified criteria (such as price and quantity) and gets executed. However, if the order fails to execute within the trading day, it expires and is cancelled automatically.

What is the purpose of day validity?

A day validity ensures that an investor's order is executed on the same trading day. This kind of validity enables traders to profit from short-term price fluctuations and market movements. It also aids in risk management by limiting exposure to overnight price changes.

What are the drawbacks of day validity?

Day validity offers the benefit of executing trades within a single trading day, it has certain drawbacks as well. These include:

1. Missed opportunities: If the desired trade does not get executed within the trading day, the investor may miss out on potential profit or the opportunity to exit a position.

2. Market volatility: Since the order is valid only for a day, it exposes investors to potential market volatility. Overnight price changes or news events can significantly impact the stock's price and potentially affect the outcome of the order.

What is an immediate validity?

Immediate validity, also known as an Immediate or Cancel (IOC) order, is an order that aims for immediate execution. Unlike a day validity order, an immediate validity order does not remain active beyond the current trading session.

What is the purpose of immediate validity?

The purpose of an immediate validity order is to prioritise order execution. Traders who use IOC orders want their orders to be executed immediately, even if it means only partially fulfilling the order.

What are the drawbacks of immediate validity?

Immediate validity orders present certain challenges as:

Partial execution risk: Since these orders aim for immediate execution, there is a possibility of only a partial execution. This means that only a portion of the desired quantity may get executed. The rest of the order may remain unfulfilled.

Liquidity limitations: Immediate validity orders heavily rely on market liquidity. In case of low liquidity or a lack of matching orders, the order may not get executed at all or only get partially executed.

What is a minute validity?

Minute validity is an order duration that allows the order to remain active for a short duration of time, typically one minute. If the order is not executed within that minute, it gets automatically cancelled.

What is the purpose of minute validity?

The purpose of minute validity is to enable investors to take advantage of immediate market opportunities. By setting a short validity period, traders can swiftly react to price changes and execute trades promptly.

What are the drawbacks of minute validity?

Minute validity has the following drawbacks:

Time pressure: Since these orders are valid for a short period, investors must monitor the market closely and make quick decisions. This time pressure can sometimes lead to hasty or impulsive trading choices.

Potential for missed opportunities: If the desired trade does not get executed within the one-minute timeframe, the investor may miss out on the opportunity altogether.

The bottom line

Understanding the various types of order validity is essential for investors in the Indian stock market. Day validity, immediate validity, and minute validity each serve different purposes and have their own advantages and drawbacks. You can navigate the stock market more effectively by choosing the appropriate order validity type based on your trading goals and risk tolerance.

 

Related Articles: Understanding order types and margining in commodities | The way you execute your orders can make a vast difference | Understanding the nuances of smart order routing

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