What is an Immediate or Cancel Order (IOC)?
An immediate or cancel order (IOC) is an order to buy or sell a security that attempts to execute all or part immediately and then cancels any unfilled portion of the order. An IOC order is one of several "duration", or time in force orders, that investors can use to specify how long the order remains active in the market and under what conditions the order is canceled.
Other commonly used duration order types include fill or kill (FOK), all or none (AON) and good ‘till canceled (GTC). Most online trading platforms allow IOC orders to be placed manually or programmed into automated trading strategies.
- Immediate-or-cancel (IOC) orders attempt to execute immediately and cancel any unfilled portion.
- IOC orders only require a partial fill, and may be designated as limit or market orders.
- Investors use IOC orders when markets are volatile to try to fill as much as possible at current market prices.
Basics of an IOC Order
Investors can submit either a “limit” or “market” immediate or cancel order (IOC) depending on their specific execution requirements. An IOC limit order is entered at a specific price whereas an IOC market order has no price attached and transacts with the best offer price for a buy and best bid price for a sell. IOC orders differ from other duration orders in that they only require a partial fill, whereas both FOK and AON orders must be filled in their entirety or canceled. GTC orders remain active until either executed in the market or canceled by the client, although most brokers cancel them between 30 and 90 days. IOC orders help investors to limit risk, speed execution and provide price improvement by providing greater flexibility.
When to Use an IOC Order
Investors typically use IOC orders when submitting a large order to avoid having it filled at an array of prices. An IOC order automatically cancels any part of the order that doesn’t fill immediately. Assume, for example, that a client places an IOC order to purchase 5,000 shares of International Business Machines Corporation (IBM). Any portion of the 5,000 shares not purchased immediately is automatically canceled. Those who trade several stocks throughout the day may use an IOC order to minimize the risk of forgetting to cancel an order at the close manually.
Real World Example of an IOC Order
Suppose an investor places an IOC market order to buy 1,000 shares of Apple Inc. (AAPL). Let’s say the order book shows 2,000 shares bid at $170.95 and 500 shares offered at $171. The order would immediately fill 500 shares at the offer price ($171) and cancel the unfilled portion of 500 shares.
Let's assume another investor places an IOC limit order to buy 1,000 shares of Apple at $169 and the stock is currently trading at $170. The S&P 500 falls away in afternoon trade at which time a seller offers 700 shares at $169. The order immediately executes 700 shares at the offer price ($169) and cancels the balance of 300 shares. Unfilled IOC limit orders expire at the end of each trading day and need to be reinstated daily.
IOC limit orders protect against getting a bad fill in a fast moving or illiquid market. On the other hand, IOC market orders ensure a complete or partial execution in a strongly trending stock that has heavy buying demand.