OCO Order Definition
An OCO Order, or One Cancels the Other Order, is a pair of orders stipulating that if one order executes, then the other order is automatically cancelled. An OCO order combines a stop order with a limit order on an automated trading platform. This type of order is primarily used in online trading to mitigate risk and to ensure that an investor can lock in profits if a trade goes in their favor.
OCO Order Key Points
- An OCO Order is a combination of two orders, a stop order and a limit order.
- If one of the orders is executed, the other order is automatically cancelled.
- OCO Orders are used to mitigate risk and lock in profits.
- They are commonly used in online trading and on automated trading platforms.
What is an OCO Order?
An OCO Order is a trading strategy that allows investors to place two orders at the same time. It consists of a stop order, which will buy or sell a security when its price reaches a particular point, and a limit order, which instructs to buy or sell a security at a specific price or better. Once either of these orders is filled, the other is automatically cancelled.
Why is an OCO Order important?
OCO Orders are important because they allow traders to plan for various market possibilities and automate their strategies. By placing two orders at once, a trader can plan for both a possible upside and downside, ensuring they can lock in profits or prevent losses regardless of market direction. This is particularly useful in volatile markets, where price swings can be unpredictable.
When to use an OCO Order?
An OCO Order is typically used when a trader expects a security’s price to move in one of two directions and wants to plan for both. For example, if a trader owns a stock that is currently trading at $20, they could place an OCO order to sell at $22 (limit order) or at $18 (stop order). This way, they can lock in a profit if the price rises, or limit their loss if the price falls.
Who can use an OCO Order?
OCO Orders can be used by any investor or trader who has access to an online trading platform that supports this type of order. They are commonly used by day traders and swing traders, who need to quickly react to market movements and want to automate their trading strategy.
How does an OCO Order work?
When an OCO Order is placed, two separate orders—a limit order and a stop order—are created. The limit order will only be executed if the security’s price reaches the limit price or better, while the stop order will only be executed if the security’s price reaches the stop price. If either of these conditions is met and the order is executed, the other order is automatically cancelled. This ensures that only one of the orders will be executed, hence the name “One Cancels the Other”.
