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The power of Immediate or Cancel (IOC) orders

24 Nov 2023


You may often encounter a variety of terms and strategies used in the stock market. One such term is "IOC" or Immediate or Cancel. Understanding the significance of IOC orders can be the key to effectively navigating the share market's complexities. This article will help you understand the concept of IOC orders, their importance, and how they can impact your trading experience.

What is an IOC order?

An Immediate or Cancel (IOC) order is an order that investors or traders can issue in the share market. When an IOC order is placed, it mandates that the buying or selling of a security must occur almost instantly. If the transaction cannot be executed promptly, the order is automatically canceled without any further action required from your end. An IOC is a zero-duration order since there are only a few seconds of time lapse between the order placement and execution.

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IOCs are swift and automated, which makes them a valuable tool if you are looking for immediate execution of your trades in the dynamic world of the stock market.

How does the IOC order work?

The IOC order allows you to specify the conditions under which a trade should be executed. It can be set as either a limit or a market order. If you use it as a limit order, the trade is executed only when the security reaches a specified price point. In contrast, a market IOC order ensures the immediate execution of the trade at the prevailing market price. This flexibility empowers you to tailor your orders based on specific price criteria.

Here's an example of the ICO order:

Mr Bhushan initiated a Market IOC order for 500 shares of ABC Inc. at Rs. 150 each. Upon entering the order into the system, only 300 shares are available at Rs. 150/-. In such a case, 300 shares will be bought immediately, and the Market IOC order for the remaining 200 shares will be automatically canceled. Since IOC is a zero-duration order, only the available quantity matching the specified price will be transacted.

Why should you use an IOC order?

Here are key reasons why utilizing an IOC order can be advantageous:

  • IOC orders are instrumental when placing large orders. Attempting to execute a substantial trade simultaneously could impact market prices. Using an IOC order can avoid the risk of inadvertently influencing the market, as the order is fulfilled swiftly. This minimizes the likelihood of significant price fluctuations.
  • An IOC order allows the trade to be executed in tranches for more significant transactions, where the desired quantity may not be available at a single price point. It also provides flexibility and lets you obtain the desired amount over multiple transactions.
  • An IOC order can be particularly beneficial if you manage diverse portfolios and execute multiple strategies simultaneously. IOC orders offer an easy solution by automating the cancellation of unfulfilled orders. This significantly streamlines the trading process.

Features of an IOC order

Here are some characteristics of an IOC order:

  • Provides precision pricing: IOC orders ensure you do not overpay by executing trades at the intended price, which is particularly crucial when market prices are volatile.
  • Presents a choice between a limit or market order: Market IOC orders facilitate transactions at the current market price, while limit orders enable you to set a specific price for order execution. You can choose between limit or market IOC orders.
  • Counters market volatility: IOC orders offer a quick exit at specific prices during market volatility. This helps you curtail your losses. 
  • Offers flexibility: You can use IOC orders for bulk trades or small orders. IOC is a flexible tool that can be effective in either case. Moreover, it can be used by intraday traders looking for quick transactions and investors looking for precise entries and exits.

To sum it up

IOC orders can be a strategic solution when executing multiple trades simultaneously. They can help you mitigate the risk of overlooking cancellations at the end of trading hours and ensure a more streamlined and efficient trading experience. They also offer a more automated trading approach. However, it is essential to use them correctly.


Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 

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