What is Immediate or Cancel Order?

When trading stocks, forex, or other assets, you may encounter various types of orders. One such order is the Immediate or Cancel (IOC) order. This type of order is designed to ensure that your trade gets executed right away or not at all. This blog will explain what an IOC order is, how it works when you should use it, and its benefits. 

Overview of Immediate or Canceled (IOC) Order?

An Immediate or Cancel (IOC) order is a type of instruction you give when trading stocks or other financial assets. When an IOC order is placed, the goal is clear: it should be executed right away, or not at all.

Imagine you want to buy or sell something, and you need it done quickly. By placing an IOC order, you’re telling your broker to execute the trade immediately. 

If the entire order can’t be filled right away, any part of it that remains unfilled will be cancelled. This way, you don’t end up with a partially filled order that might stay open in the market.

For example, if you place an IOC order to buy 1,000 shares of a company but only 600 shares are available right now, the order will buy those 600 shares and cancel the remaining 400 that couldn’t be filled immediately. This ensures that your trade is handled as swiftly as possible without leaving any pending parts.

How Does Immediate or Cancel Order Work?

An Immediate or Cancel (IOC) order is straightforward in its operation. Here is how it works:

Placing the Order

When you place an IOC order, you instruct your broker to execute your trade immediately. This means that you want the trade to be completed as soon as possible without any delays.

Execution

The broker tries to fill your order right away. If the entire order can be completed quickly, it will be executed in full. For example, if you want to buy 500 shares and there are 500 shares available at the price you want, the order will be fully executed.

Partial Fulfillment

Sometimes, only part of your order can be fulfilled immediately. If there are not enough shares available or if the market conditions are not ideal, only a portion of your order might be completed. 

Cancellation

Any part of the order that cannot be filled immediately is cancelled. So, if the remaining 400 shares cannot be bought right away, the IOC order will cancel that portion. This way, you don’t have to deal with an open or partially filled order that might not get completed later.

Example of Immediate or Cancel Order

Let’s say you want to buy 1,000 shares of a company at a certain price. If only 600 shares are available right now, here’s how an Immediate or Cancel (IOC) order works:

You place an IOC order to buy those 1,000 shares. Since only 600 shares can be bought immediately, the IOC order will complete the purchase of those 600 shares. However, the remaining 400 shares, which can’t be bought right away, will be cancelled.

This means you’ll end up with the 600 shares you wanted, and the 400 shares that couldn’t be purchased immediately won’t stay as an open order.

When to Use an IOC Order?

Using an Immediate or Cancel (IOC) order is best suited for specific trading scenarios. Here are some common situations where an IOC order can be useful:

1. Rapid Market Conditions

• When the market is moving quickly, and there’s a need to make a trade without delays, an IOC order is ideal.
• For example, if a stock price is changing rapidly, and you want to buy or sell immediately, an IOC order ensures that the trade happens right away or not at all.

2. Avoiding Partial Fills

• If you want to avoid having an open or partially filled order that might not get completed, an IOC order is a good choice. 
• For instance, if you want to buy a large number of shares but are concerned about not getting the full amount due to limited availability, an IOC order will fill as much as possible and cancel the rest. This prevents dealing with an incomplete order.

3. Time-Sensitive Trades

• For trades that need to be executed within a specific timeframe, an IOC order helps ensure that the trade happens instantly. 
• If you are looking to take advantage of a short-lived opportunity, like a sudden price drop, using an IOC order will help you act quickly without waiting.

5. High Liquidity Situations

• When trading in markets with high liquidity, where lots of trades happen frequently, an IOC order can help ensure that trades are executed swiftly. 
• This is particularly useful for high-frequency traders who need to enter and exit positions quickly.

What Are the Benefits of Using IOC?

Using an Immediate or Cancel (IOC) order comes with several advantages:

1. Quick Execution

IOC orders ensure that trades are executed immediately. If speed is important, such as during fast-moving market conditions, this order type helps in getting your trade done quickly.

2. Avoiding Partial Orders

By using an IOC order, there’s no need to worry about a partially filled order. If only part of the trade can be executed right away, the rest will be cancelled. This prevents having to manage incomplete trades.

3. Enhanced Control

IOC orders give better control over trading outcomes. They allow for precise management of trades, especially when dealing with large quantities or volatile markets. This can be particularly useful for making sure that you only deal with completed trades.

4. Reduced Risk

Since IOC orders cancel any unfilled portion of the trade, there’s less risk of having an open order that might not get filled later. This reduces the chance of missing out on a trading opportunity due to lingering orders.

Conclusion

Immediate or Cancel (IOC) orders are valuable for traders who need fast execution and want to avoid leaving orders open for too long. They help in getting trades completed quickly but come with the trade-off of potentially only getting part of your order filled. Understanding how IOC orders work can help you make more informed decisions and manage your trades more effectively.