One-Cancels-the-Other Order - OCO

AAA

DEFINITION of 'One-Cancels-the-Other Order - OCO'

A pair of orders stipulating that if one order is executed, then the other order is automatically canceled. A one-cancels-the-other order (OCO) combines a stop order with a limit order on an automated trading platform. When either the stop or limit level is reached and the order executed, the other order will be automatically canceled. Seasoned traders use OCO orders to mitigate risk.

INVESTOPEDIA EXPLAINS 'One-Cancels-the-Other Order - OCO'

For example, assume an investor owns 1,000 shares of a volatile stock that is trading at $10. The investor expects this stock to trade in a wide range in the near term, and has a target of $13 on it; for risk mitigation, he would like to lose no more than $2 on the stock. The investor can therefore place an OCO order, which would consist of a stop-loss order to sell 1,000 shares at $8, and a simultaneous limit order to sell 1,000 shares at $13, whichever occurs first. These orders could either be day orders or good-till-canceled orders.

If the stock trades up to $13, the limit order to sell would be executed, and the investor's holding of 1,000 shares would be sold at $13. Concurrently, the $8 stop-loss order will be automatically canceled by the trading platform. If this order is not canceled and the stock subsequently drifts down to $8, the investor may needlessly find himself with a short position of 1,000 shares at $8 if the sale order was mistakenly executed.

RELATED TERMS
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches ...
  2. Limit Order

    An order placed with a brokerage to buy or sell a set number ...
  3. Trading Platform

    Software through which investors and traders can open, close ...
  4. Order

    An investor's instructions to a broker or brokerage firm to purchase ...
  5. Stopped Out

    The execution of a stop-loss order. Stopped out refers to when ...
  6. Good 'Til Canceled - GTC

    An order to buy or sell a security at a set price that is active ...
RELATED FAQS
  1. Can a stop-loss order be used to protect a short sale transaction?

    The quick and simple answer to this question is yes. The major difference between the stop-loss order used by an investor ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Trailing-Stop Techniques

    The important decision to exit a position must be based on more than emotion if you want to be a disciplined trader.
  2. Investing Basics

    Principal Trading and Agency Trading

    Ever wonder what happens behind the scenes when you buy or sell a stock? Read on and find out!
  3. Options & Futures

    Trailing-Stop/Stop-Loss Combo Leads To Winning Trades

    Combine trailing stops with stop-loss orders to reduce risk and protect portfolio value.
  4. Investing Basics

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  5. Active Trading Fundamentals

    The Basics Of Trading A Stock

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  6. Active Trading Fundamentals

    The Stop-Loss Order - Make Sure You Use It

    It's a simple but powerful tool to help you implement your stock-investment strategy. Find out how.
  7. Options & Futures

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.
  8. Investing

    How Swaptions Can Reduce Risk in Portfolios

    How can investing in Swaptions reduce risk in portfolios.
  9. Investing Basics

    Understanding Risk Averse Investing

    Risk averse describes a low level of risk an investor is willing to accept on his investments. An investor who is risk averse prefers little risk and is willing to accept a lower return because ...
  10. Active Trading Fundamentals

    20 Rules To Trade More Professionally

    Break free from the pack and join the professional minority with an approach that raises your odds for long term prosperity.

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center