In this article we are going to discuss another contingency order that is known as the Fill or Kill order, otherwise known as an FOK.
Have you seen those Hollywood movies where they show on the floor of the Wall Street in the New York Stock Exchange, everybody is yelling BUY! BUY! Or SELL! SELL! Well, in reality that is not how things go. Transactions, or orders, usually take some time to be executed or more technically speaking “filled” by the broker.
Unless, of course, you are using a fill or kill order. That is when things get a boost of urgency and the order is filled almost instantaneously for the trader by the broker. But how does this process actually take place? When should you use an FOK? And what is an example of this type of order in a financial market? All these answers are in this article.
What Exactly Is a Fill or Kill Order?
When you are trading in a financial market, such as the foreign exchange market (forex) or the stock market, you are actually dealing with a broker in order to have access to the market. In some way, the broker is working on your behalf in direct access with the market. Even though you also have access to the market through the broker, the actual trades are obviously executed by your broker of choice.
When you want to execute a trade you send an order to the broker with regard to the specifics of the trade, including the amount and the price and naturally the position whether long or short – buy or sell.
There are various types of orders that are used by traders to execute their trades. One such order that we are talking about in this article is known as the Fill or Kill order (FOK).
When an FOK is submitted by the trader to the broker, the broker is required to execute the trade immediately. In fact, as soon as the directive is received by the broker, they are required to fill the order.
This is the first part of the order, which is of course the Fill part of the order. The second part, or the Kill part, is when the broker is not able to fill the order for any reason.
When the order is not able to be filled immediately and fully, the order is canceled, or killed.
So, to wrap up, an FOK is an order issued by the trader to the broker regarding immediate and complete execution of the order or the cancellation of the order otherwise.
A Fill or Kill order either takes place instantaneously and also wholly, or it doesn’t happen at all.
Given these characteristics, perhaps if you are more familiar with financial markets, you are reminded of other forms of orders that are issued by traders. If so, then you are not wrong. Because there are many similarities between the Fill or Kill order and other orders. Let’s take a look at them now.
A Cross Between All or None and Immediate or Cancel
The Fill or Kill order has kind of the best of both worlds. This means that it has qualities from two different other orders that are actually quite useful.
This is why many consider the FOK to be a combination of AON – which is an All or None order – with an IOC – which is an Immediate or Cancel order.
The similarity of FOK with AON is in the fact that it has to be done in full or none at all. Both of these orders require the broker to complete the order fully and wholly or cancel it. This means, with both of these order types, partial fills are not allowed.
And of course the similarity between FOK and IOC has to do with the timing of the order. In both cases, the order has been filled immediately following submission by the trader to the broker. If the order is not able to be filled immediately, then it ought to be canceled.
So when you put these two key features from All or None and Immediate or Cancel orders together, you get a Fill or Kill order.
When Should Traders Use a Fill or Kill Order?
Naturally, when you think about it, the most prominent and significant reason to use the FOK is to get your order filled as fast as possible.
Of course time is of the essence in any financial market. Prices can change at any moment in the forex market or the stock market. So when you have calculated your position and have chosen to purchase the relevant assets, especially if your position is large, then even the smallest price changes can be detrimental to your position.
In situations such as these, especially when you are purchasing a great deal, it is very important to fill your order immediately. So a Fill or Kill order is the best choice for such conditions.
The fact of the matter is that, because a Fill or Kill order has to be filled very quickly, sometimes only seconds after it is submitted by the trader, it does not take place very often, as many brokers are not able to fill such orders. And the reasons vary, but mostly they depend on market conditions and the availability of the assets in the market, such as stocks. But in any case, an FOK order is not tossed around all the time by traders.
Instead, similar orders are issued such as the Immediate or Cancel order. And the crucial difference between an FOK and an IOC is that the IOC allows for partial fills. So even if your order is not able to be filled wholly and immediately, at least it will be filled partially before it is canceled.
Example of the Fill or Kill Order
By way of an example, let’s take the shares of the well-known company Tesla. Imagine a trader wants to purchase 10,000 Tesla shares at $230. Of course that is a lot of money for a great number of shares. When the order is issued, the broker has two options: a) they have 10,000 shares available at $230 or lower – which is not likely for prices to be lower – in which case the order is filled immediately and fully, or b) they do not have enough shares available or they do but not at the requested price, in which case the order is canceled immediately.
A Fill or Kill order is among the most widely known orders among traders. However, it is really not among the most widely used. Because of the nature of such an order that required brokers to fill the order immediately and completely following submission by the trader or kill the order altogether otherwise.