One-Cancels-the-Other Order (OCO)

Posted on by user

One-Cancels-the-Other (OCO) Order

Overview

A one-cancels-the-other (OCO) order links two conditional orders so that when one executes, the other is automatically canceled. Traders commonly pair a stop order with a limit order. OCO orders help manage risk and automate responses to price moves, especially in volatile markets.

How OCO Orders Work

  • You submit two orders that are contingent on one another (for example, a sell limit and a sell stop).
  • If one order fills, the trading platform cancels the other order immediately.
  • Both orders should share the same time-in-force (e.g., day or good-til-canceled) to avoid mismatched expirations.
  • Note: an OCO order cancels the counterpart order automatically, but you may need to place additional protective orders (like a stop-loss) manually after a trade is executed, depending on platform features.

Common Uses

  • Breakout trading: place a buy stop above resistance and a sell stop below support to enter whichever direction the market breaks.
  • Retracement trading: place a buy limit at support and a sell limit at resistance to buy low or sell high within a range.
  • Position exit management: simultaneously set a profit target (limit) and a loss limit (stop) so one execution locks in the result while canceling the other.

Practical Example

  • You own 1,000 shares trading at $10. Target is $13; maximum acceptable loss is $2 per share.
  • Place an OCO with:
  • Sell limit: 1,000 shares at $13 (take-profit)
  • Sell stop: 1,000 shares at $8 (stop-loss)
  • If price reaches $13, the limit order executes and the $8 stop is canceled. If price falls to $8 first, the stop executes and the $13 limit is canceled.
  • Without OCO, forgetting to cancel the opposite order could accidentally create an unwanted short position.

Advantages

  • Automates trade management and reduces the chance of conflicting orders executing.
  • Helps enforce disciplined exits (profit-taking and loss-limiting) without constant monitoring.
  • Useful around earnings, news, or other volatility events.

Limitations and Risks

  • Not all brokers/platforms offer native OCO functionality; behavior and available order types vary.
  • OCO does not replace the need to manage a live position—slippage, partial fills, or platform delays can still occur.
  • If orders are placed independently, human error (forgetting to cancel one) can lead to unexpected positions.
  • Time-in-force mismatches can unintentionally invalidate one leg if not set identically.

How to Place an OCO Order (Checklist)

  1. Decide the two outcomes you want (e.g., profit target and stop-loss, or breakout above/below a range).
  2. Choose order types for each leg (limit vs stop).
  3. Set identical time-in-force for both orders.
  4. Confirm quantity matches across both legs to avoid position mismatches.
  5. Review platform behavior for partial fills and cancellation timing.
  6. After one leg executes, verify the opposite leg is canceled and place any additional protective orders if needed.

Best Practices

  • Test OCO behavior in a demo account to understand your broker’s execution and cancellation timing.
  • Use round-number spacing to account for typical bid-ask spreads and avoid immediate fills from noise.
  • Combine OCO with position sizing and risk management rules to align potential loss with your risk tolerance.
  • Monitor the market when volatility is extreme—OCOs help but do not eliminate execution risk.

Conclusion

OCO orders are a practical tool to automate trade outcomes and prevent conflicting executions. When used correctly—with matching time-in-force, proper sizing, and awareness of platform specifics—OCOs streamline entry and exit strategies and help enforce disciplined risk management.