If timing is the most important factor for you in trading, then it might just be that the immediate or cancel order, otherwise known as an IOC, can be your go-to market order.
With the help of this order you can rest assured that the broker knows you want your order to be filled faster than ever. But then again, there is a proper time and condition for executing such orders.
Whenever you want to send an order or directive to the broker, make sure to evaluable the situation fully. In this article we want to first see what an immediate or cancel order is and secondly how and when you should use it. In the end we will also provide an example of an immediate or cancel order.
What Is the Meaning of Immediate or Cancel Order?
As it can be surmised from the name, an immediate or cancel order is one according to which your buy or sell order of an asset in any financial market, such as the foreign exchange market or forex, is sent to the broker, but with a twist!
When you send the immediate or cancel order to the broker, they are required to fill your order immediately or cancel it altogether. But there is another twist to the order.
The filling of the order ought to be immediate, but it does not have to be completely and wholly all at once. This means the filling of the order can take place completely or partially.
So, fully or partially, that is not the question. The only important thing with the IOC order is the instantaneous nature of the order. In fact, an immediate or cancel order is among a series of orders in financial markets that are known as duration orders. Duration orders are orders that specify the time during which the order ought to be filled or otherwise canceled by the broker.
There are, of course, some duration orders that are quite well known and also widely used, such as the fill or kill order, which requires the broker to fill the order immediate such as the immediate or cancel order but with the difference that the order has be filled completely; also the good till canceled order which provides a theoretically indefinite time window to the broker during which they can fill the order, as such this order can take up to months.
How Does the Immediate or Cancel Order Work?
In essence, there are two main types of an immediate or cancel order. One type is a limit type and the other is known as a market type of IOC. Each of these types of orders has to do with the specifics of the situation and the order. In fact, both of them are tied with the price that is specified by the trader.
First, a limit immediate or cancel order type is one where the trader specifies the exact price that he or she is asking for. This will limit the broker, however, in filling the order presented to them. So it ought to be used carefully and with enough considerations.
Secondly, a market immediate or cancel order type will allow the trader not to specify a price for the order. This will give them an upper hand. And the reason for that is when you issue a market immediate or cancel order to the broker, they are required to fill your order at the best price possible. So in this case there might be a higher chance of the broker filling your order, wholly or in part.
So these are how the two types of the immediate or cancel order work. But to understand them better we will provide examples of each in the following sections.
When Is the Immediate or Cancel Order Used?
You might wonder to yourself that ordinarily orders are not filled so fast within brokers. Especially with certain brokers where there is a wait line for the orders and it can take quite a long time for your order to have it round.
So why would you put yourself in that situation? Well, there is a strong reason for using the immediate or cancel order. In markets that are most volatile or at times when a certain market is volatile, such as the forex market, it would be quite prudent to get on the buying or selling trend as quickly as possible.
So when the opportunity presents itself, you need to make sure that you don’t miss it. Who knows when it will come around again. So with the help of the immediate or cancel order you place your order and let the broker know that you want it done as quickly as possible.
Plus, in these types of situations an IOC order has an advantage or its similar order is the FOK order. The immediate or cancel order allows for partial fills. So even if the broker does not have enough assets in its inventory to fill your order wholly, you will at least get some part of your order filled. This means even in a small amount, you will still benefit from the change that is taking place in the market at that moment.
But with a fill or kill order, you will not have this advantage at times when opportunity is short and will move on fast.
Please keep in mind that these situations do indeed occur in financial markets. For instance, in the forex market the most common and prevalent market trend is a sideways trend.
This means you do not get highly volatile uptrends and downtrends all the time. As a result, when there is a window or chance for profits, you better seize that quickly or it will slip away from your hands. And this is exactly when you should use an immediate or cancel order.
Examples of the Immediate or Cancel Order
To provide examples of the IOC, let’s look at them from the perspective of each type.
First, the limit IOC type.
Suppose you place a limit IOC order to purchase 100 Tesla shares at $270 a share. And the inventory or the order book of the broker indicates that there is a bid for 500 shares at $273 and only 50 for $270.
In this case, out of the 100 requested shares, 50 will be filled at your requested price. And because there is no other share available at the price you asked for, the rest of the order is canceled.
Second, the market IOC type.
Further support, you place a market IOC order to purchase 100 Tesla shares. Because it is a market order, the broker will fill your order with the best price available. The order book indicates 70 shares at $269, 100 shares at $270, 200 shares at $273. In this case, the broker will fill your order with those 70 shares, because that is the best price available and then the rest of your order is naturally canceled.
An immediate or cancel order, which is also known as an IOC is a market order that allows traders to place an order with the broker to have their order filled immediately. IOC has two types of limit and market. The former allows traders to specify the price of the order and the latter leaves the price open to the broker to fill the order with the best price available.