Immediate or Cancel (IOC) Orders: A Quick Guide

Traders strive to execute trades with both speed and accuracy. Immediate or Cancel (IOC) orders are among those instruments in traders' arsenal that help them fine-tune their tactics. This article will explore IOC orders, how they work, and when they can be used effectively.

How IOC Orders Work

Immediate or Cancel is a common type of order that allows investors to close positions quickly or partially for a certain price. 

If, for any reason, a broker cannot fill the position entirely, such as in volatile markets with rapidly changing prices, the IOC order will cancel itself automatically. This type of order prevents traders from getting stuck in unfavourable markets while maintaining some control over their orders.

Practical Applications

To demonstrate how IOC orders can be practically applied, let's take a closer look at an example:

An investor has been closely monitoring the performance of ABC stock and has decided to acquire 1,000 shares when the price drops to $50 per share. 

To execute this strategy, the investor places an IOC order with their broker. The investor specifies the ticker symbol, the quantity of shares to purchase, and a limit price of $50.

Now, let's say that ABC stock is currently trading at $52 per share. As soon as the price drops to $50, the IOC order will be activated and sent out to the market. The broker's system will try to match the investor's limit price of $50 with any available seller.

If there are enough sellers willing to sell their shares at $50 or lower, then the 1,000 shares will be purchased right away, and the order will be filled. However, if there are not enough sellers at that price, then the IOC order will be filled partially or not at all, depending on the remaining quantity of shares available.

Advantages and Unique Features

IOC orders are frequently used among traders due to several advantages:

The speed and timing of execution: Financial markets are highly volatile, and prices can change quickly. With IOC orders, traders get the opportunity to execute their trade almost immediately as the order is placed in the market.

Partial execution: Even if the entire order cannot be fulfilled at once, traders can still execute a portion of it. Thus, traders do not miss out on potential profits due to market changes.

Reduced risk: As only a portion of the order is executed, traders can minimise their exposure to sudden fluctuations that may not work in their favour.

IOC vs. FOK, AON, and GTC

While FOK, AON, and GTC orders may seem similar to IOC orders, there are significant differences that traders should be aware of:

FOK (Fill or Kill) orders necessitate instant processing or cancellation. FOK orders aim to ensure complete fulfilment of large trades, mitigating the risk of partial execution and potential slippage. The entire order will be cancelled if the exchange cannot fill the entire quantity at once.

AON Orders

AON orders call for the full execution of the order. However, these orders permit partial executions provided the entire quantity gets filled eventually. Typically, AON orders are utilised in block trades or when a trader deals with assets having low liquidity.

GTC Orders

GTC orders have no set expiration date and can remain active until they are executed or cancelled. This makes them an invaluable resource for traders who aim to set long-term orders without the need to continually observe the market.

How to Leverage IOC Wisely?

To truly make the most of Immediate or Cancel (IOC) orders, it is important to go beyond basic strategies and explore more advanced techniques. One effective way to do this is by incorporating other orders with IOC, which can provide a greater level of control over execution prices. Additionally, do not forget about the benefits of using technical analysis, and tracking market trends and news events.