One Cancels Other (OCO)

One Cancels Other (also known as OCO) is a kind of trading order that is formed by some conditional parts where execution of one part of the order automatically leads to the cancellation of the other part.

In case of the One Cancels the Other (OCO) order, the execution of one order results to the cancellation of another order. It means, an investor places two orders simultaneously and runs with the order that is triggered first.

One Cancel Other or OCO is usually used to manage the risks involved with the investment. A trader may use this type of order to sell a stock in times when the value of that stock drops considerably high or low. A trader may set the OCO order by considering two type of trade: first, selling the stock at the high price threshold and second, selling at the low one. If one of these trades occurs, the other one will be cancelled automatically.

To have a clear understanding of OCO, let’s consider a trading scenario. Let’s assume that a trader is willing to choose one from two available options. The first option is going long (to purchase) the CFDs of ABC Company if the price breaks above $24.50. And the second option is to sell first and then buy back if the price slides down to $24.00 (going short). If the $24.50 gets triggered, the investor will go for the long trade and will cancel the short trade. However, if it is the $24.00 that gets triggered then the opposite thing will happen. Means, the trader will go for the short trade and will cancel the long trade.

A trader may consider using this kind of order in a market or for a CFD that is trading within a certain range where opportunity exists to get the best out of the volatility, something that is possible if the break outside the range allows the trader to do so.

Implementing Limit and Stop Order for OCO

It is to be mentioned that an investor can utilise the OCO order for making profit by implementing a limit and a stop order. Say for example, a trader is dealing with the CFDs of company XYZ. Now the trader is long 2000 XYZ at $19.80 but is willing to cut the position if the price goes down to $19.00. This is why the first part of the order is a “stop sell” at $19.00. On the other hand, if the market is moving upwards, then the trader will exit with profit when the price hits $20.25. This part of the trading comes with a “limit sell” at $20.25. According to OCO, one of these orders will be cancelled automatically when the other one is executed.