Oco orders: One-Cancels-the-Other OCO Order Definition

At the same time, the order can be used to mitigate risk if the price level falls. To clarify, stop orders are used as a risk management tool by traders to limit their losses or lock in profits. For example, if a stock is trading in a range between $20 and $22, a trader could place an OCO order with a buy stop just above $22 and a sell stop just below $20. When the price breaks above resistance or below support, a trade is executed and the corresponding stop order is canceled. It is worth mentioning that OCO order is not peculiar to the crypto market as it is used in other financial markets too, including stocks.

The investor expects this stock to trade over a wide range in the near term and has a target of $13. For risk mitigation, they do not want to lose more than $2 per share. These orders could either be day orders or good-’til-canceled orders. The trader in our example can set a stop-loss order if a correction pushes the price of BTC below $17,000. This order type can be paired with a sell limit order that takes profit when the price of Bitcoin hits the $23,000 price mark. With this, the trader has successfully taken advantage of an OCO order to increase returns while reducing the risk exposure.

A stop order allows traders to execute trades if the market moves against their intended targets. For example, if a trader has set a stop order somewhere below the market price and the market suddenly goes down, the stop order will automatically be executed to limit the loss. If OCO orders are used to enter the market, the trader must manually place a stop-loss order when the trade is executed.

The trader, named Joe, can set an entry order for Bitcoin at $20,000 and another one for Ethereum at $1,000. These prices signify the amount at which Joe intends to buy these assets. Since this is an OCO order strategy, only one of these orders will execute.

Many traders use OCO orders to minimise risk when entering a position. However, the most common reason for OCO orders is because it is a good exit strategy. If one order comes to fruition, then its corresponding order is automatically cancelled. The dual orders are featured on most cloud-based trading platforms. When a trade reaches either the stop or limit price and the order is executed, its partnered order is automatically cancelled.

What Is a Limit Order?

In such cases, traders can opt to place an OCO order with a buy limit or a sell limit. For instance, a trader buys Bitcoin at $19,000 with the hopes that the price may rise to $23,000 in the coming weeks. Knowing how volatile crypto assets can be, the trader can set an OCO order that pairs a stop-loss order and a sell limit order. This setup reduces risks while ensuring that the possibility of earning profits does not diminish.

This is suitable in periods when the asset is experiencing an uptrend. If we apply this analogy to financial markets, you can better understand the idea behind a one-cancels-the-other order. With this trading order, the investor creates a plan if the asset they’re trading rises or falls in value. In addition, an OCO order tends to make trades easier as it allows traders to stick to predesigned trading strategies.

Hence, you can only invest your fund in one of the two assets under consideration. Also, the OCO order helps traders base their investment decision on favorable pricing conditions. In other words, you can set up your OCO order that initiates a buy order when either of your preferred assets reaches your preferred price target.

How to Set an OCO Order?

When trading on Binance, you can use OCO orders as a basic form of trade automation. This feature allows you to place two limit orders at the same time, which can minimize potential losses. However, the use of OCO orders may vary slightly, depending on the specific exchange used.

If Bitcoin is the first to fulfill the price condition, then the Bitcoin entry order will execute while the Ethereum entry will cancel. The reverse occurs in the case when the price of Ethereum falls to $1,000 before Bitcoin’s value hits the $20,000 price mark. OCO order is also effective when deciding where to invest your limited funds, especially when you are caught between two choices.

Upon execution of one of the orders, the other order are cancelled automatically. If one part of the order is executed, then the all other parts are cancelled. Sometimes in life, you can only have one thing or the other, but you can’t have both at the same time. You decide to spend it on an umbrella if it rains or on sunglasses if it’s sunny. You’re prepared for both possible scenarios but only one will come to fruition.

Start your crypto journey

In this article, we will discuss what OCO order is, why is it a popular trading strategy, and how to use it. A one-cancels-all order is a set of multiple orders placed together. If one order is triggered in full, the others are automatically canceled.

Targeting Price Breakouts

On many trading platforms, multiple conditional orders can be placed with other orders canceled when one has been executed. As previously noted, unfortunately, it can’t be both sunny and cloudy outside. But if you apply the principles of an OCO order, you can still make the best of each potential outcome.

Choose either Buy or Sell depending on the market trend and your trading strategy. Now that you understand the fundamentals of a stop order and a limit order, below is how you can pair the two order types to implement an effective OCO order. One such strategy involves the use of one-cancels-the-other orders.

Note that there is no standard procedure for implementing OCOs, as the process depends on the exchange platform you are using. Some exchanges offer a seamless user interface that provides easy-to-understand ways to set up OCOs. Such platforms allow users to select the number of order types they want to run simultaneously. For example, if the price of Bitcoin is swinging between $18,500 and $20,000, a trader can initiate an OCO order to execute a sell limit order when BTC’s price breaks beyond $20,000. If the reverse is the case , the OCO order will execute a sell stop order, preferably to minimize the loss. Conversely, traders use stop-entry orders to initiate buy orders at a preset value above the current market price.

Risk Management in Open Positions

Suppose an investor owns a stock that is currently trading at $50 per share. They are willing to sell it if the price falls below $45 to limit their losses, and are also willing to take profits if the price goes up to $55. However, even if the asset you’re trading isn’t in a bear market, many traders use OCO orders for the same purpose.