Trading 101 — Order Types: One Cancel the Other (OCO)

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Trading Interface of a Financial Terminal

One cancel the other is a conditional order usually made of a pair of two orders placed simultaneously and intended to execute as “either one or the other.” OCO orders often combine a stop order with a limit order. When one of the two orders is executed, the second one is immediately canceled. It is used by traders using technical analysis to trade retracements and breakouts between resistance and support levels. It is also an efficient order type for trading algorithms.

Pros: Efficient for volatile markets.

Cons: Relative difficulty to set up properly and secure profits.

Example:

You bought ABC at $10,000 and expect it to be volatile in a $8,000 — $13,000 window in the short term. To mitigate your risks, you may place an OCO order with a stop-loss order at $9,000 combined with a take-profit order at $12,000. When one is executed, the other one is cancelled, avoiding a situation in which the second one is unwittingly executed later (resulting in a short position in this example).

OCO orders usually pay maker fees.

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