What is a One-Cancels-Other Order?

Overview of One-Cancels-Other Orders

An OCO order (one-cancels-the-other) is a pair of conditional orders stating that if one order is executed, then the other order is automatically canceled. An OCO order often combines a stop order with a limit order on a brokerage trading platform. When either the stop or limit order price is reached the order is executed and the other order is automatically canceled. Traders use OCO orders to reduce risk, to exit the market, and to save time.

One-Cancels-Other Order Example 

Let’s say we want to buy 1,000 shares of Apple stock currently trading at $100/share. Apple shares have been a bit volatile lately so we want to make sure we minimize any potential losses or maximize any potential gains. We have a target profit price of $110/share; and to control losses we do not not want to lose more than $5 per share. We place an OCO order, which purchases the 1,000 shares at $100 and also consists of a stop-loss order to sell 1,000 shares at $95 and a simultaneous limit order to sell 1,000 shares at $110, whichever occurs first.

Scenario 1: If Apple stock trades up to $110, the limit order to sell executes and our holding of 1,000 shares gets sold at $110 and we make a 10% profit. Also, the $95 stop-loss order gets automatically canceled.

Scenario 2: If Apple stock trades down to $95, the stop-loss order to sell executes, and our holding of 1,000 shares gets sold at $95 and we realize a 5% loss. Also, the $110 limit order gets automatically canceled.

Conclusion on One-Cancels-Other Orders

At Verdia, we use OCO orders to simplify and streamline our trading process. OCO orders help us easily lock in profits, minimize potential losses, and save countless hours monitoring trades.

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