Introduction
In the fast-moving world of the stock market, thousands of traders place their buying and selling orders simultaneously. Meanwhile, you might have multiple securities you are looking to trade throughout the day. When you need to buy and sell different securities, it can get hard to stay on track with the stock prices of all your holdings. In this case, an Immediate or Cancel (IOC) order is useful. It is a vital tool, especially if you are involved in intraday trading. Read on to learn more about the IOC order, how it works, and its advantages.
What is an IOC order?
An Immediate or Cancel or IOC order is a type of order in the stock market that you need to execute either immediately or it gets cancelled. You can make the order in full or partially based on your preference. But, for any reason, if you cannot fulfill the order right away, the unexecuted portion stands cancelled. The key aspect of IOC is that it involves no waiting period. It leaves no room for unexecuted orders to remain active for future execution.
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For example, if you place an IOC order to buy 100 shares of a particular company, and only 70 are available for execution, the system will buy those 70 shares and cancel the remaining 30 shares instantly.
How does an IOC order work?
IOC orders fundamentally work on the concept of immediate execution without risking price changes over time. This type of order is best suited for trading highly liquid assets. Alternatively, you can opt for an IOC order when the market seems extremely volatile.
Let's say, you want to buy or sell a stock at a specific price during fast market movements. You can place an IOC order to ensure the trade gets executed without delay. However, because of its immediate nature, there's always a risk that part of that order, or even the entire order, may not get fulfilled.
How to place an IOC order?
The process of placing an IOC order is quite straightforward. You can opt for the "Immediate or Cancel" option offered on most online trading platforms. Once you input the desired quality and price, the system automatically tries to execute the order. Depending on the availability of shares, the order is immediately fulfilled or cancelled. In case of partial fulfilment, the non-executed shares get cancelled. It is best to opt for IOC orders when you execute large volumes or when trading under time-sensitive conditions.
Advantages of IOC orders
Some of the benefits of IOC orders include:
· Fast execution
IOC orders offer quick execution without delay. This is ideal during market fluctuations when prices are unstable and immediate action is crucial.
· Flexibility
With IOC orders, you can execute trades based on your preference. You can either place them as market or limit orders. A market order means the trade is executed at the current market price. With a limit order, you can choose the price at which the trade gets executed.
· No holding hours
There is no risk of your traders lingering on the share market with IOC orders. It avoids the issue of an order staying active for too long and possibly being executed later at an undesirable price.
Difference between IOC and day order
The day orders remain active throughout the trading day until the market closes. This gives more time for execution. IOC orders have no such window. These zero-duration orders focus on immediate action and cancel any portion of the order that cannot be filled right away.
Use cases of IOC orders in stock trading
IOC orders are particularly useful in the following situations:
· High-frequency trading
If you rely on rapid trades that take place in milliseconds, you can benefit from IOC orders. In such high-frequency trading, this type of order ensures that your trade gets executed without delay.
· Volatile markets
In markets where prices are swinging rapidly, you can use IOC orders to lock in prices quickly without risking slippage.
· Partial execution requirement
Sometimes, you might want to execute only a portion of an order, depending on the market liquidity. You can use IOC orders to enjoy this flexibility without the risk of the entire order remaining unexecuted.
Conclusion
By now, you must have understood IOC orders are apt for quick execution without waiting. They are highly effective in volatile markets and for intraday traders. However, they also come with limitations, such as partial fills and cancellation of unexecuted portions. Hence, you need to use this type of order strategically. Once you have clarity on this, you can use IOC orders and navigate the stock market complexities effectively. When used correctly, IOC orders can serve as a valuable tool in maximising your stock trading efficiency.
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