What Is a One-Cancels-All (OCA) Order?
A one-cancel-all order (OCA) is a bundle of at least three stock or option limit orders placed together. If one of these orders is executed, the remaining orders get canceled. It is an advanced order that is available from broker platforms that cater to experienced traders. The two general strategies of using an OCA order include optimizing an entry price within one stock or optimizing the selection of one stock among several choices. This order type is not offered by all brokers.
- A One-Cancels-All order type creates multiple potential orders based on set conditions.
- Once the first of these potential orders is filled, the remaining orders are immediately instructed to cancel.
- The risk of this order type is that more than one order could fill after the first before the cancellation instructions are fulfilled.
- Commonly used strategies for using this order type include improving price execution or improving stock selection.
- Most brokers offer a similar feature called "conditional orders."
How a One-Cancel-All Order (OCA) Works
The orders sent simultaneously by an OCA can be limit orders, stop orders, or stop-limit orders. placed on one or multiple stocks or equity option contracts. If one of the trades contained within the OCA is triggered, that order is executed and the other orders are immediately instructed to be canceled. Once an order is placed, a broker system can only cancel that order if it is not already in the process of being filled. This means that an OCA order carries a very small risk that more than one order could actually be filled within the split second after the first order is filled but before all other orders can be canceled.
Depending on how the broker's system is programmed, if the triggered order can only be partially filled, the other orders may be left open but adjusted according to the proportion of the partially executed trade. If an investor cancels one of the orders, the remainder will automatically be withdrawn as well.
The orders can all be placed on the same underlying stock or on separate issues. Option contracts can be part of a bundled OCA as well. Time in force directions such as good ‘til canceled (GTC) may be applied to OCA orders.
Of all the major discount brokers that Investopedia reviewed in its Best Online Brokers review, only Interactive Brokers uses this order type. The others use a function referred to as Conditional Orders to accomplish something similar.
When to Use a One-Cancel-All (OCA) Order
There are many reasons why an OCA order can be useful. Typically, investors employ the OCA order to invest in the most optimal stock between a few options, optimize the price point at which they enter a single stock, and safeguard their profits and protect themselves from losses.
Optimize Selection of Multiple Stocks
For example, suppose an investor determines they want to invest in the retail sector in the coming quarter. Suppose they have $15,000 of available capital to work with. They research the sector and select three stocks they are willing to consider, but they want to see which one will offer the best bargain over the next week.
They place three limit orders, one for each stock, at a price more than 1% below the most recent quotes. They specify the correct number of shares for each stock to maximize the number of shares they could buy at the prices specified in the OCA order. Whichever stock reaches the respective limit order first will be the stock the investor has selected, and the other two orders will be canceled.
Optimize Entry Point in Single Stock
Another strategy involves considering multiple routes to a single investment. For instance, a trader looking to own a particular stock may bundle a standard limit purchase order for the stock with one or more options contracts that could give them other rights to purchase the stock at a favorable price.
OCA orders are sometimes referred to as either-or or alternative trades. They can also be confused with one-cancels-other (OCO) orders which involve only two orders. These are all complicated transactions and some brokerage firms or online trading platforms do not offer them to clients. Those that do typically charge special fees.
Protect from Losses and Safeguard Gains
A third rationale for an OCA order sometimes referred to as a bracketed order is designed to ensure profit in the case of a stock’s escalating price and safeguard against downside loss. In this alternative order, an investor places a market buy order for shares of company X and brackets that order with two sell orders.
The first is a sell limit order at a strike price higher than the original market purchase price; the second is a stop-loss order set at an acceptable margin below the market purchase price. The structure of this OCA guarantees the investor a minimum loss from downside movement and a guaranteed gain if the prices climb to an acceptable level. One-cancels-the-other orders are also used in this manner.