One Cancels the Other Order (OCO)

November 21, 2023 - Around 2 mins mins to read

Understanding One Cancels the Other Order (OCO)

One Cancels the Other Order (OCO) is a type of exchange order that automatically cancels the other order upon execution. This order type is commonly used in trading and is named One Cancels the Other (OCO) for its self-explanatory nature. Similar to limit and stop loss orders, an OCO is a conditional order that triggers buy or sell actions when a specific trading price threshold is reached or surpassed.

An OCO order typically consists of one stop order and one limit order. Once one of these orders is executed based on predetermined criteria, the other order becomes void. This trading tool is commonly utilized by professional traders to take advantage of rising prices or limit potential losses during market downturns.

Limit orders are utilized to buy or sell shares of an asset when the market reaches a specified price range. Conversely, stop orders are used to set buy or sell limits in the opposite direction. These orders involve selling an asset to prevent losses if the price starts to decline or buying an asset to profit from a price increase.

An OCO order allows traders to effectively navigate volatile markets. It enables them to set a range for maximizing profits and minimizing losses. For instance, if a trader wants to trade Bitcoin (BTC) during a particularly volatile period, they can place two orders: a sell order at an expected high price and a stop-loss sell order at a specific point to mitigate losses if the market moves unfavorably. The same approach can be applied to buy orders as well.

It is crucial to note that executing OCO orders requires expertise and a deep understanding of the market and trading strategies.