Making informed decisions can result in whether you make a profit or loss in the share market. However, this is not easy. There are many order types in the market, which you need to understand to know which order to place and where. Of these, Good Till Triggered (GTT) and Limit orders stand out. These are two powerful tools that can help you grab market opportunities. But the question is, which is better: GTT or Limit order?
Explore everything in the guide here.
What is GTT in the Share Market?
Let’s start with what is GTT in share market? Well, Good Till Triggered is known as GTT. It is a trading order type. It helps in automating buy and sell transactions. All these transactions are based on a predetermined price. Once set, this is valid for 1 year.
So, here, the trader sets a trigger price. Now, when the market reaches that price, the transaction is executed. So, the trader is not required to monitor constantly. This helps in:
- Develop long-term strategies
- Managing risks using predefined stop-loss or take-profit levels
- Reduce emotional decision-making in trading.
What is a Limit Order in the Share Market?
A Limit Order allows investors to buy or sell a stock at a specified price or better.
- Buy limit order: The transaction will only be executed if the market price falls below the limit price or is lower.
- Sell limit order: It is executed only if the market price rises to the limit price or higher.
Limit orders allow control of the price for transactions. However, there’s no execution guarantee. If the price is not reached, the order will not be executed.
GTT vs Limit Order
Now you know about GTT and the limit orders. You might think these are the same. However, there are various points of difference between the two. So, let us explore the differences in the detail over here:
1. Validity
GTT orders are valid for one year. Once they are set, they remain active for the next one year. They close when the transaction is executed, cancelled, or expired.
Limit orders are valid for one trading session. So, if these are placed at the start of the trading day, they will get executed or cancelled when the trading hours close for the day.
2. Execution Mechanism
GTT execution is automatic in nature. The predefined price is already set. So, as soon as the market reaches that level, the transactions get executed. The execution will be at the specified limit price.
Limit orders do not have any separate trigger conditions with them. So, as soon as the market reaches the price set or better than that, the transaction is executed.
3. Order Types
GTT is a bit of a complex strategy. It can be implemented for one single order or for One Cancels Other (OCO) orders. So, to effectively use it, traders would need practice and assistance.
Limit orders are quite simple. You set it for the trade for one day. The idea is to set a maximum purchase price or minimum selling price. This can be easily completed by even a new trader.
4. Suitability
GTT is practically a long-term plan. It is good for traders who do not have time to monitor the market regularly. So, this is more suited for long-term investors in the share market.
Limit orders are perfect for intraday traders. This is a short-term strategy where the trade is set and executed on the same day. But this type would need monitoring to a certain extent.
5. Risk Management
GTT offers risk management to a certain extent. This allows traders to set the stop-loss and target price in advance. Also, if the trader feels the need to change, it can be done by cancelling the current order and placing a new one.
Limit orders do not directly offer risk management. There is control over price execution, but the risk is still high compared to the GTT.
6. Market Conditions
GTT is more appropriate for stable market conditions. Here, the trader can set it, and the rest will be done in the automated mode.
Limit orders are used for volatile markets. The trader would need to keep an eye on every movement to ensure better returns are gained.
Conclusion
GTT and Limit orders are both valuable tools for traders. However, it is important to note that both of these serve different needs of traders. Understanding which is better in which situation is quite crucial.
So, if you are using a trading platform to trade, make sure you understand these two order types and their differences properly. This will help you make the right strategy and optimize your trading outcomes.
