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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.
Here is a tool that empowers traders to manage such fluctuations – The IOC order. 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 an 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.
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.
Understanding the functionality of IOC orders
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.
If the order cannot be fulfilled immediately, the entire or partial order is cancelled to stay aligned with the trader’s strategy.
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 do IOC orders differ from other order types?
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 as per their instructions, but it remains open until the trader cancels it, unlike an IOC which cancels automatically.
- A market order facilitates immediate execution but not at the price the trader expects, unlike IOC which executes based on the trader’s expected price.
- A non-executed intraday order expires at the end of the session, whereas an IOC order expires as soon as it notices unavailability.
A quick comparison of different order types:
|Dependency on price
|Dependency on time
|Immediate or cancelled
|Same trading session
|For swift execution and minimum risk
|For quick execution
|For precision and price sensitivity
|For capitalising on a day’s price range
Benefits of IOC orders for traders
- Minimising slippage risk: Slippage is the difference between the execution and expected price that can risk potential profits. IOC eliminates this by executing orders close to the expected price.
- Flexibility: The provision of partial fulfilment of the order makes these orders 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 navigate challenges and seize opportunities by entering positions with minimal delay.
- Precision to elevate trading strategies: The effectiveness of short-term trading strategies often lies in precision. IOC orders offer high levels of accuracy across different trading approaches.
When is an IOC order effective?
- 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.
- 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 order.
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.
IOC orders are valid for a few seconds only, given their feature of immediate execution or cancellation. So, if the order does not get matched as soon as it is placed, it gets cancelled immediately.
A good till cancelled order offers the cancellation feature of IOC, but not immediately. It allows the investor to cancel the order when they desire to, upon non-execution. However, brokerage firms decide the number of days an order can be kept open.
No, it is impossible to cancel an executed order. You can, however, place a reverse order i.e., you can sell the shares if you bought them earlier, but it cannot guarantee you the same price.
IOC and intraday are two different order types. While IOC gets cancelled immediately upon non-execution, intraday remains open till the end of the session. An intraday requires squaring off of positions, which is not necessary in an IOC order.
An IOC order can either be a market order or a limit order. An IOC market order instructs the system to execute an order at the prevailing market price or cancel it. An IOC limit is where the trader instructs the system to execute the order at a desired price or cancel it.