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How Does an Immediate or Cancel (IOC) Order Work?
Depending on their particular execution needs, investors may submit a “limit” or “market” immediate or cancel order (IOC). While an IOC market order has no price attached and trades using the best offer price for a buy and the best bid price for a sell, an IOC limit order is entered at a specific price.
When you place an IOC order, it targets immediate execution at your specified price or better. If the market can’t fill the entire order right away, it completes as much as possible and cancels the rest.
This approach helps traders avoid delays and ensures quick decision-making. In such cases, the trader may need to submit a new order for the unfilled portion at a later time or different price.
Example of an Immediate or Cancel (IOC) Order
A trader buys 1,000 units of EUR/USD at a specific price. And place an IOC order. The market can immediately fill 700 units at his desired price. These 700 units are executed, and the remaining 300 units are canceled. This method allows the trader to secure part of his position without waiting for the entire order to fill.
Benefits of Using This Order
Speed: IOC orders execute quickly, allowing traders to capitalize on fleeting market opportunities.
Partial Fills: Unlike Fill or Kill (FOK) orders, IOC orders accept partial executions, providing flexibility in fast-moving markets.
Reduced Exposure: By ensuring immediate execution or cancellation, IOC Limit Orders minimize the risk of unfavorable price changes during order execution. This can be particularly important in volatile market conditions where prices can change rapidly.
When to Use Immediate or Cancel (IOC) Orders
Traders often use IOC orders in volatile markets where prices change rapidly. They are also useful when dealing with large order sizes to prevent significant market impact. Additionally, IOC orders help traders avoid partial fills that could leave them with unintended positions.