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Immediate or Cancel (IOC) orders: A trader’s guide from concept to execution

A trade order that offers flexibility and lets you control your trade execution is a necessity for every experienced trader.

ioc meaning in share market

Have you ever wondered how traders manage swift trade execution in ever-evolving financial markets where a fraction of a second can make all the difference? Stepping into the trading world, where global headlines can swiftly turn into market fluctuations, one should be aware of various tools and strategies.

There is a valuable tool empowering traders with greater efficiency, even amidst market turbulence, called the IOC order. Imagine a trade order that needs to be executed immediately and otherwise cancelled automatically. It is the core of the intriguing concept of IOC in the stock market. 

Let’s explore a complete overview of an IOC order, including its mechanics and distinctions from market and limit orders.

What is IOC in trading?

The full form of IOC  is Immediate or Cancel order. The SEBI (Securities Exchange Board of India) defines an IOC order as an order to trade financial assets that attempts to execute all or a portion of the order immediately and then cancels if it remains unfulfilled.

Clarifying the concept, IOC order means a type of trading order that represents swift execution with accuracy. An IOC order allows traders to give instructions to execute the order immediately at the optimal price. Else, cancel it if immediate execution is not possible. 

This distinct characteristic separates IOC orders from other order types in the stock market.

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Understanding the functionality of IOC orders

Now, with a basic grasp of IOC meaning in the share market, let us delve into its mechanics that drive rapid and precise execution. 

There are two operating conditions of IOC orders to define how they work – immediate execution and cancellation. 

When a trader places an IOC order, the trading system is instructed to fulfil the trade order at the best available price. If the prerequisites for immediate trade execution are met, the trading platform executes the trade, and the order is regarded as complete. 

On the other hand, if the order cannot be fulfilled immediately, the entire or partial order is cancelled to stay aligned with the trader’s strategy. In this manner, IOC orders balance the trader’s prompt responsiveness and the market dynamics, effectively mitigating the potential for losses.

Let us consider a scenario. 

A trader decides to place an IOC order to buy 500 equities of a company at Rs. 80 per share. When he placed the order, only 350 equities were available at the desired price of Rs. 80. 

Consequently, the order was executed for 350 shares only. The IOC order for the remaining 150 shares gets cancelled automatically.

How IOC orders differ from other order types?

Utilising IOC orders, traders instruct to execute their orders at the optimal price at the right entry or exit point; otherwise, opting for trade cancellation if immediate fulfilment is not feasible. It differentiates an IOC order from conventional order types – limit, market, and day trades.

Also Read: How does arbitrage trading work?

Let’s find the characteristics that make IOC different from other types of trade orders:

  • A limit order allows traders to trade securities at a particular price only as per the trader’s instruction. Limit orders remain on the order book until the trader cancels it. On the other hand, IOC orders are executed swiftly or removed immediately without the intervention of the trader. 
  • A market order is executed at the current market price of the security to ensure immediate execution but potentially at a price different from the trader’s expectation. In the case of IOC orders, there is no such risk as it gets cancelled if it does not meet the trader’s instructions.
  • Differentiating from an intraday order, an IOC order is cancelled instantly after detecting the unavailability of the security. On the other hand, an intraday order expires at the end of the session if it remains unfulfilled.

Notably, traders can place a market IOC order or a limit IOC order. 

Quick comparison of different order types:

Order TypeIOC OrderMarket OrderLimit OrderDay Order
Execution SpeedRapidQuickDependency on priceDependency on time
Timeframe Immediate or CancelledImmediateVariable   Same trading session
Price ControlModerateLimitedHighModerate
SuitabilityFor swift execution and minimise risk For quick executionFor precision and price-sensitive For capitalising on day’s price range

Benefits of IOC orders for traders

As market scenarios can turn as rapidly as headlines emerge, IOC orders are considered a strategic step, enabling traders to respond promptly and precisely to changing scenarios. The benefits of IOC orders extend beyond speed and accuracy: 

  • Minimising slippage risk: Slippage is the difference between the execution and expected price that can risk potential profits. Thanks to IOC orders in the share market, traders can benefit from the price near their expectations. This element appeals to traders who prioritise precise execution. 
  • Flexibility: The provision of partial fulfilment of the order makes these order flexible. Another aspect of flexibility is placing a market or limit order. Traders can place an IOC order as a market or limit order. 
  • Increased success rate with minimal delay: Market volatility brings opportunities and challenges. IOC orders can help traders to navigate challenges and seize opportunities.

    Seeking to capitalise on rapid price movements, they can enter or exit a position in the market with minimal delay. It increases the odds of capturing favourable prices that might otherwise slip away in an instant.
  • Precision to elevate trading strategies: The effectiveness of short-term trading strategies often lies in precision. Whether it is about engaging in scalping, momentum trading, or others, traders can consider IOC orders for the high level of accuracy required for such trading approaches’ success.

When is an IOC order effective?

Traders who want to capitalise on momentary market opportunities can rely on IOC orders. There are a few factors determining its effectiveness: 

  • Large orders, especially for low-volume stocks, can influence the prices if they remain open for long. Therefore, these orders are considered most effective when traders want to execute significantly large orders without impacting the markets.

Also Read: A beginner’s guide to understanding share price calculations

  • IOC orders are also considerable when one takes multiple positions in the market but finds it challenging to monitor each trade. To avoid any risk of loss due to an open trade till the trading session ends, traders can consider this orders. 

The closing 

IOC orders enable traders to seize opportunities, manage risks, and optimise their trading strategies like never before.

Whether you are a seasoned trader who wants to refine your approach or a newbie keen to understand varied trading strategies, unlocking the potential of IOC orders can help you in today’s dynamic financial markets.

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