One-Cancels-the-Other Order – (OCO)

What is a Cancellation Order on the Other – (OCO)

Another Cancellation Order (OCO) is a pair of orders stating that if one order is executed, the other order is automatically canceled. An OCO order combines a stop order with a limit order on an automated trading platform. When the stop or limit price is reached and the order is executed, the other order is automatically canceled. Experienced traders use OCO orders to mitigate risk and enter the market.

Basics of Another’s Cancellation Order – (OCO)

Traders can use OCO orders to trade retracements and breakouts. If a trader wanted to trade a break above the resistance or below the support, he could place an OCO order which uses a buy stop and a sell stop to enter the market.

For example, if a security is trading in a range between $ 20 and $ 22, a trader can place an OCO order with a buy stop just above $ 22 and a sell stop just below $ 20 . Once the price exceeds resistance or support, a trade is executed and the corresponding stop order is canceled. Conversely, if a trader wanted to use a retracement strategy that buys on support and sells at resistance, he could place an OCO order with a buy limit order at $ 20 and a sell limit order at $ 22.

If OCO orders are used to enter the market, the trader must manually place a stop loss order after the transaction is executed. The period in force for OCO orders must be identical, which means that the period specified for the execution of stop and limit orders must be the same. (For more information on order types, see: Introduction to types of commands: conditional commands.)

Key points to remember

  • One order cancels the other is a conditional order type for a pair of orders in which the execution of an order automatically cancels the other order.
  • OCO orders are generally used by traders for volatile stocks that trade in a wide range of prices.

OCO order example

Suppose an investor has 1,000 volatile stocks that trade at $ 10. The investor expects this security to trade in a wide range in the short term, and has a target of $ 13; for risk mitigation, he does not want to lose more than $ 2 per share. The investor could therefore place an OCO order, which would consist of a stop-loss order to sell 1,000 shares at $ 8, and a simultaneous limit order to sell 1,000 shares at $ 13, whichever comes first. These orders can be either daily orders or orders good to cancel.

If the stock trades up to $ 13, the sell limit order is executed and the investor holds 1,000 shares at $ 13. At the same time, the $ 8 stop-loss order is automatically canceled by the trading platform. If the investor places these orders independently, there is a risk that they forget to cancel the stop-loss order, which could lead to an unwanted short position of 1000 shares if the stock is subsequently traded at $ 8.

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