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Immediate or Cancel (IOC) orders execute instantly and cancel any unfilled parts. Discover their features, benefits, and use in high-frequency trading.
In stock market trading, the efficiency of executing orders plays a vital role in determining the success of a trade. The Immediate or Cancel (IOC) order is a tool that enables traders to execute transactions quickly. It makes sure to immediately cancel any unexecuted part of the order.
This feature makes it especially valuable for traders in fast-moving markets. So, knowing what IOCs in share market orders are, how they function, their pros and cons, and the best scenarios to use them can be valuable for you.
It will help you to stay on track, especially if you have multiple securities and are planning to buy or sell multiple orders simultaneously throughout the day.
IOC stands for Immediate or Cancel. This term describes the nature of the order. In simple terms, IOC is a type of market or limit order used in trading, where the trader places the order with the condition to execute it immediately or cancel it if not fully filled.
The term reflects that the system either fills the order immediately or cancels it without delay if not fully executable.
This order type is particularly useful for traders who need to act swiftly and do not want to leave open orders that might remain unfilled.
For example, suppose you place an order to buy 2,000 shares of stock X at ₹100 each. Only 1600 are available. So:
The system buys the 1600 shares immediately
It cancels the remaining 400 shares on the spot
This tool comes with unique features that make it a preferred choice for many traders. These include:
Execution: These orders work instantly, which is ideal for traders who need fast transactions
Partial Execution: Unlike all-or-none orders, IOC orders can fill part of the trade and cancel the rest
Risk Control: Traders can manage risks better by setting exact price levels for execution
Useful in Volatile Markets: IOC orders help secure trades quickly and reduce exposure to sudden price changes
Flexible Setup: Traders can customise them as limit orders (at a set price) or market orders (at the current price)
It works on the fundamental concept of safe and immediate execution, especially when the market is volatile. Here’s how it works:
When a trader submits an IOC order, the broker sends the order to the stock exchange, where it will trade the shares. It will immediately execute the order based on market conditions.
If the order is large, and there is not enough liquidity to fulfil the entire order, it will only fill the available portion and cancel the rest of the order.
Unlike market orders (Which you can execute at the best available price) and limit orders (which specify a price at which to buy or sell), an IOC order will execute immediately or cancel.
IOC orders offer several benefits to traders who value speed and control over their trades. Here are some of the key benefits:
One of the main benefits of using IOC orders is the ability to execute trades without delay. This is particularly useful for day traders or those dealing with fast-moving markets.
Since it will cancel any unexecuted portion of the IOC order, as a trader, you can avoid having orders lingering in the system indefinitely.
IOC orders help reduce the risk of slippage. This is common when the market moves between the time of placing and executing an order. By ensuring quick execution, IOC orders reduce this risk.
As a trader, you need to have control over your order execution. With the help of IOC orders, you can ensure that the trade is complete without leaving parts of the order unfilled or pending.
While IOC offers several benefits, they also come with certain limitations that you need to consider before using them:
The main drawback of IOC orders is that they execute only the available portion immediately and cancel the rest.
IOC orders rely on market liquidity. In low-liquidity markets or during periods of high volatility, there may not be enough shares available to fulfil the order. This can result in partial fills or cancellations.
These orders may get rejected if liquidity is insufficient or prices move unfavourably.
Using IOC orders may involve extra charges or hidden fees.
Although IOC orders aim to reduce market impact, large orders can still cause price fluctuations. This can affect the execution price and trade results.
They are suitable in specific scenarios, especially for traders who need immediate action. Here are some scenarios where you can use IOC orders:
For Time-Sensitive Trades
If you need to execute a trade quickly without leaving orders pending, an IOC order ensures completion of the process for you based on the status of the market.
In Volatile Markets
Stock prices can fluctuate rapidly, and IOC orders can help avoid the risks of unexecuted orders.
For High-Volume Trades
Large trades or high-frequency traders can benefit from IOC orders. With it, you can quickly execute multiple transactions to make sure you are ordering the desired portion of the trade.
You need to understand the distinctions between different order types in the stock market. Here’s a comparison between IOC orders and day orders:
Aspect |
IOC order |
Day Order |
|---|---|---|
Duration |
Immediate |
Valid till the end of the trading day. |
Execution |
Instant or cancel |
It can stay pending until the market closes. |
Use Case |
High-speed trade |
Trades need more time flexibility. |
Following are step-by-step process to conduct an IOC order:
Use a reliable trading platform with a user-friendly interface.
Select the security you want to trade and review its market data.
Choose ‘IOC’ as the order type and enter the details:
Buy or sell
Quantity
Price (for limited orders)
Double-check the details before placing your order.
Verify the order for execution or cancellation.
IOC orders are an essential tool for traders. They offer quick action and risk mitigation in volatile markets. They also come with risks, such as partial execution and dependence on liquidity. Understanding when and how to use IOC orders is crucial for effective trading strategies.
IOC orders will be suitable for you if you are an active trader who requires immediate execution and is trading in liquid, fast-moving markets. For passive investors or those with long-term investment strategies, other order types, such as limit or market orders, may be more appropriate.
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.
Sources
The meaning of IOC in the share market is the Immediate order or Cancel. It is a type of order that executes immediately or is cancelled if not filled right away.
It places the order with the condition that it will execute it immediately. It will cancel any unfilled part of the order.
IOC orders offer immediate execution, eliminate pending orders, and help mitigate risks like slippage.
The main disadvantages include partial execution and the impact of liquidity on whether the order is fully filled.
IOC orders are ideal for time-sensitive trades, high-frequency trading, and volatile market conditions.
