Introduction
In our previous post, we explored the mechanics of Good Till Triggered (GTT) orders on Upstox - how they’re structured with primary, stop-loss, and target legs; their two-step execution process; and features like Market Price Protection (MPP). We saw how GTT orders can automate both entry and exit conditions, effectively creating a mini-trading strategy that executes automatically when your specified price conditions are met.
Building on that foundation, this article covers important considerations and best practices for using GTT orders effectively. Understanding these practical aspects will help you avoid common pitfalls and maximise the benefits of this powerful trading tool.
Important Considerations and Scenarios
1. Order Execution is Not Guaranteed
Even when trigger conditions are met, execution depends on market liquidity and price movements. Your limit order might not execute if the price moves quickly past your limit price.
2. Partial Primary Leg Execution
The primary leg needs to be executed completely for the stop-loss and target legs to be activated. Partial execution of the primary leg will not activate the exit legs. This matters when setting your GTT orders, especially for less liquid stocks where complete execution might take longer.
3. Corporate Actions Impact
Active GTT orders are cancelled when corporate actions such as stock splits, dividends, or mergers happen. This is needed because these events can change the stock price and lead to wrong triggers. When this happens, Upstox sends notifications (email & push) to affected users so you can create new GTT orders with updated prices. Always check your notifications after corporate action news.
4. Open Unexecuted GTT Orders and Fund Blocking
Once a GTT order is triggered and sent to the exchange, it remains open if not executed at the specified limit price. These orders will keep blocking your funds until you cancel them, which can cause problems.
Example: Price Gap Scenario with MPP
Let’s say you have a long position in a stock with a GTT stop-loss set at ₹100 with an MPP of 3%. If the stock gaps down significantly and opens at ₹70 (perhaps due to bad news overnight), here’s what happens:
- Your stop-loss is triggered as the price falls below ₹100
- A limit sell order is placed at ₹97 (calculated as ₹100 - 3% MPP)
- However, since the market price is now ₹70, well below your limit price of ₹97, your order won’t execute
- The limit order remains open for the day, blocking the funds/shares associated with this position
The main problem comes when you try to exit the position yourself. Since your GTT-triggered limit order is already open at ₹97 and blocking those shares, any attempt to place a new sell order may be rejected because you don’t have enough funds/shares available. This traps you in the position until you:
- Cancel the open GTT-triggered limit order
- Place a new order at the current market price
This scenario highlights the importance of actively monitoring your GTT orders, especially during periods of high volatility or when there’s significant news that could cause price gaps. Always remember to cancel unexecuted open GTT-triggered orders if you plan to exit the position in other ways.
Best Practices for Using GTT Orders
1. Set Realistic Trigger Prices
Avoid setting trigger prices too close to the current market price to prevent premature triggers. Consider the typical volatility of the instrument and set trigger prices at significant technical levels.
2. Use MPP Wisely
Higher MPP values increase execution probability but may result in exits at less favourable prices. Balance this trade-off based on your risk tolerance:
- For highly liquid stocks: Lower MPP values (1-2%) may be sufficient
- For less liquid stocks: Consider higher MPP values (3-5%) to improve execution probability
3. Periodic Review
Periodically review your active GTT orders to ensure they still align with your trading strategy and market conditions:
- Check if the technical levels that informed your trigger prices are still valid
- Adjust stop-loss and target levels as the market evolves
- Cancel outdated GTT orders that no longer fit your strategy
4. Test with Small Quantities
If you’re new to GTT orders, start with smaller positions to understand how they behave in different market conditions. This allows you to learn the nuances of GTT execution without significant financial impact.
5. Consider Liquidity
For less liquid stocks, set wider MPP values to accommodate potentially larger price gaps. Also, be prepared for the possibility that your orders might not execute as expected during low-liquidity periods.
6. Have a Backup Plan
Always have a contingency plan for scenarios where your GTT orders might not execute as expected:
- Know how to quickly cancel open GTT orders if market conditions change dramatically
- Be prepared to intervene manually if necessary
- Consider setting price alerts in addition to GTT orders for critical levels
7. Monitor Corporate Actions
Keep track of upcoming corporate actions for stocks where you have active GTT orders, as these events will cause your orders to be cancelled. Be ready to place new orders with adjusted prices after such events.
8. Cancel Untriggered GTT Orders
If you already have a position with active GTT target and stop-loss orders and you exit the position manually, make sure you cancel the active GTT orders linked to that position. Failing to do this may result in unexpected orders being placed when price conditions are met in the future.
Conclusion
GTT orders are powerful tools that can help automate your trading strategy and enforce disciplined risk management. By understanding both their mechanics (Understanding GTT orders on Upstox) and the considerations outlined here, you can use them more effectively to reach your trading goals.
Remember that while GTT orders add automation to your trading, they don’t replace the need for careful market study and planning. Use them as part of a well-thought-out trading plan, and they can make your trading more efficient and disciplined.
Feel free to leave a comment below if you have any specific questions about GTT orders. If you experience any issues with their execution, don’t hesitate to contact Upstox customer support for assistance.
Happy trading!