What is an OCO (One Cancels the Other) Order in Trading

In the fast-paced world of trading, timing is critical. Managing profits while protecting against losses often requires rapid, disciplined decision-making. This is where an OCO order — short for "One Cancels the Other" — comes into play. It’s a strategic trading tool that helps traders automate their actions and eliminate emotional bias by placing two orders simultaneously. When one is executed, the other is automatically cancelled. This approach links two conditional orders, allowing predefined responses to price movements for either profit booking or risk control.

An OCO order is a combination of two conditional orders — typically a stop-loss and a target limit order — placed together. When one of these orders gets executed, the other is automatically cancelled. This helps the trader avoid situations where both orders are triggered or where a position is left unprotected.

It’s commonly used in stocks, options, futures, and forex trading and is supported by many modern trading platforms.

Example Scenario

Imagine you bought a stock at ₹500:

• You want to sell it at ₹550 to take profit
  

• But you also want to cut losses if it drops to ₹480
  

You can place an OCO order with:

• A limit sell order at ₹550
  

• A stop-loss sell order at ₹480
  

If the price hits ₹550, your profit-taking order is executed, and the stop-loss is cancelled. If it hits ₹480 first, the stop-loss is executed and the profit order is cancelled.

An OCO order functions based on predefined conditions. Here’s how it works in steps:

Step 1: The trader places two linked orders — a limit order to capture profit and a stop-loss to manage risk.

Step 2: Both orders remain active simultaneously, but only one will be executed.

Step 3: If the limit order is executed first, the stop-loss is automatically cancelled.

Step 4: If the stop-loss is triggered, the profit order is cancelled.

Step 5: This automation reduces the need for constant monitoring and prevents conflicting trades.

This functionality is especially useful in volatile markets, where prices can swing rapidly.

OCO orders can serve multiple trading purposes depending on the trader’s strategy:

1. Profit Booking and Loss Prevention

It’s primarily used to set a target price and a stop-loss simultaneously, ensuring one closes the trade and the other protects against unfavourable movement.

2. Entry Management

Advanced traders also use OCO for entries. For example, in range-bound markets, they might place:

• A buy stop order above resistance (anticipating a breakout)
  

• A sell stop order below support (anticipating a breakdown)
  

Whichever condition triggers first opens the position, while the other gets cancelled.

3. Event-Driven Strategies

During major announcements (like earnings or budget releases), OCO orders help manage unpredictable price swings by setting boundary conditions for entry or exit.

OCO orders present various trading functions:

• Automation: Helps automate exit strategy without active monitoring
  

• Risk Management: Allows predefined stop-loss limits
  

• Flexibility: Enables conditional setups based on market direction
  

• Emotion Control: Reduces chances of panic decisions during price swings
  

• Efficiency: Combines two orders into a single strategic plan

Despite the benefits, traders should be aware of some limitations:

• Not available on all platforms: Especially in India, not every broker supports OCO
  

• Risk of partial fills: In volatile markets, slippage can affect execution
  

• Internet or platform failures: If your trading system goes offline, the cancellation might not happen in real-time
  

• Requires precision: Incorrect levels can result in premature order triggers
  

Order behavior may vary across platforms. Users can review platform documentation or test with small trade sizes.

The exact steps vary by platform, but the general process is:

1. Log in to your trading terminal or app
   

2. Select the instrument and choose OCO order or advanced order type
   

3. Enter:
   

   • Entry type (buy/sell)
     

   • Quantity
     

   • Stop-loss trigger price
     

   • Target/limit price
     

4. Review and confirm the order
   

5. Monitor order book to ensure both legs are active
   

Platforms that support OCO may label them under “Cover Orders,” “Bracket Orders,” or “Advanced Orders.”

OCO (One Cancels the Other) orders link two conditional orders to automate execution. They function by canceling one order when the other is triggered. Usage varies by trading platform and strategy. Users should review platform features and test functionality, as order execution depends on market conditions and system performance, without guarantees of outcomes or specific results.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.