What Is an Order-Sends-Order (OSO/OTO)?
An order-sends-order (OSO), also commonly known as an order-triggers-other/one-triggers-other (OTO), is a set of conditional orders stipulating that if one order executes (the primary order), then the other orders are automatically entered (the secondary order or orders). There are several examples of OSO/OTO orders, including bracketed orders and take-profit strategies. Experienced traders use OSO/OTO orders to mitigate risk and to lock in gains.
OSO orders may be contrasted with order-cancels-order (also known as one-cancels-the-other) (OCO) orders that cancel, rather than trigger, additional orders.
- An order-sends-order (OSO) is a type of conditional order in which the execution of a primary order triggers the placement of one or more secondary orders.
- Also known as order-triggers-other (OTO), these compound conditional orders can be used to mitigate losses and lock in profits on a new position.
- OSO/OTO orders also can be created that take advantage of the position of some stocks as bellwethers for their industries or sectors.
- An OSO/OTO order are, in effect, the opposite of an order-cancels-order/one-cancels-the-other (OCO) order, in which execution of a primary order cancels one or more other orders.
Understanding Order-Sends-Order (Order-Triggers-Other)
Traders can use an order-sends-order/order-triggers-other condition to generate entry and exit points with one order. For instance, a buy limit order may be placed on a stock at a level that is 5% below the current market with an OSO/OTO condition that if this first order is filled, a second limit order to sell be placed at a level 10% above that buy. The sell order will only be placed if the buy order is executed, thus automatically setting a take profit level with the broker.
If the primary order is canceled, it cancels the secondary order automatically. If, however, a secondary order is canceled, it typically leaves the primary order active as a regular order.
An OSO/OTO condition can also be used in order to limit losses. Say the trader has the same buy limit specified 5% below the current market price. If this order is filled, the order that is triggered could then be a stop-loss at a level 10% below that price, to automatically exit the position if the market drops.
In these cases, the condition is to trigger one additional order. However, these conditions can be layered and made more complex. For instance, a bracketed order (explained in greater detail below), involves a fill triggering two additional orders, making it an order-triggers-two (OTT) condition. Many online brokerage platforms allow for as many additional orders to be triggered depending on the trader's strategy.
In one modification of this type of condition, a one-triggers-a-one-cancels-the-other (OTOCO) order triggers two orders, as in an OTT condition. However, if either one of the second orders is subsequently filled, it cancels that remaining order.
Examples of OSO/OTO Orders
In a bracketed buy order, a buy order has a sell limit order and a sell stop order attached, the latter two secondary orders being entered automatically once the primary buy order is executed. The sell limit order gets priced above the buy order and the sell stop order, or stop-loss order, gets priced below the buy order. In this application of an OSO/OTO, the trader has set maximum possible gains and losses on their position. Of course, if the primary buy order is not executed for whatever reason, then the secondary orders are never entered. A bracketed sell order would have similar conditions, but in reverse.
In another example of an OSO/OTO, a trader enters a limit order to purchase a particular stock. If this primary order is executed, then it will trigger one or more secondary limit orders to buy other stocks, perhaps in the same industry or sector. This OSO/OTO also may include the placement of sell limit orders or sell stop orders on one or more of these stocks, as in the bracketed buy order example outlined above. In this scenario, the trader may be anticipating that when a bellwether stock becomes an attractive buy, the same will hold true for secondary stocks that are included in the OSO/OTO.