Forex Glossary

One Triggers Other (OTO)

If you’re looking to streamline your trading strategy, understanding One Triggers Other (OTO) orders is essential. OTO is a trading order type that allows you to place multiple orders at once. When the first order executes, it automatically triggers the placement of one or more linked orders. This can save time and help manage trades more efficiently.

What Is an One Triggers Other (OTO) Order?

A One Triggers Other (OTO) order is a conditional trading strategy. With an OTO order, you set up two or more orders simultaneously. However, only the primary order is active when you place it. Once the primary order executes, it triggers the placement of the secondary order(s).

For example, you’re trading a stock currently priced at $50. You want to buy the stock if it hits $55 and then immediately set a sell limit order at $60. Using an OTO order, you can place both orders at once. When the first order to buy at $55 executes, the system automatically places your sell limit order at $60.

Why Are OTO Orders Useful?

Traders can use an order-sends-order/order-triggers-other condition to generate entry and exit points with one order.

An example would be a buy limit order on a stock at a level 5% below the current market, with an OSO/OTO condition that a second limit order to sell be placed at a level 10% above that buy if the first order is filled.

The sell order will only be placed if the buy order is executed, thus automatically setting a take profit level with the broker.

Automate Strategies: By linking multiple orders, traders can automate steps in their strategy, reducing the need for manual monitoring.

Save Time: Placing one order manually and waiting to set another can be time-consuming. OTO orders simplify the process.

Minimize Emotional Trading: With orders pre-set, traders avoid impulsive decisions based on market movements.

Improve Risk Management: OTO orders help traders manage risk by ensuring follow-up actions are in place as soon as the initial trade executes.

Practical Use Cases of One Triggers Other (OTO) Orders

Stock Trading: Let’s say you’re tracking a stock priced at $100. You’d like to buy it if it drops to $95, but you also want to sell it at $105 for a profit. Using an OTO order, you can set these conditions in advance. When your buy order at $95 executes, your sell order at $105 is automatically placed.

Forex Trading: In the Forex market, OTO orders are popular for managing currency trades. For instance, you could place an order to buy EUR/USD at 1.1000. Once the order executes, it triggers a sell limit order at 1.1200 and a stop-loss order at 1.0900. This approach ensures you have both profit-taking and risk-limiting measures in place.

Futures Trading: Suppose you’re trading crude oil futures. You might place an OTO order to buy a contract at $70 per barrel. Once it’s bought, a sell order at $75 can be triggered automatically to lock in profits.

Drawbacks of OTO

Since the placement of subsequent orders depends on the execution of the initial order, there is a risk that the entire trading strategy may not be executed if the initial order is not filled.

For novice traders, OTO Orders can be more complex to set up and manage than simpler order types, potentially leading to confusion or mistakes.

 

Related Term

Market Order

Entry Order

Open Order

Open Order

Fill Price

 

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