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. Good 'Til Canceled - GTC

    An order to buy or sell a security at a set price that is active ...
  5. Order

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

    The execution of a stop-loss order. Stopped out refers to when ...
Related Articles
  1. Trailing-Stop Techniques
    Active Trading Fundamentals

    Trailing-Stop Techniques

  2. Principal Trading and Agency Trading
    Investing Basics

    Principal Trading and Agency Trading

  3. Trailing-Stop/Stop-Loss Combo Leads ...
    Options & Futures

    Trailing-Stop/Stop-Loss Combo Leads ...

  4. Understanding Order Execution
    Investing Basics

    Understanding Order Execution

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center