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OCO and Contingent Orders

Posted By Robert On Friday, November 15th, 2013 With 0 Comments

OCO Orders – One Cancels out the Other

This order consists of two separate orders where the first order to be executed will automatically cancel the other order. They are treated as two separate orders that are linked together but are placed as one combined order.

Example:

The UK 100 March is trading at 6400.

You place an OCO order:

a) A Limit order to Sell £10 at 6450 (above the market) AND
b) A Limit order to Buy £10 at 6350 (below the market)

The market rallies and rises up to 6450; the limit order is executed and you sell £10 per point at 6450. The buy order at 6350 is then automatically cancelled.

Note: if the market had dropped so that the limit buy order at 6350 was executed first, this would have cancelled the limit sell order at 6450.

Contingent Orders

A contingent order is an order which can only be executed if another order is executed first. Hence the contingent order will only become live after the initial order has been executed.

Example:

The UK 100 March is trading at 6400.

You believe the market is going to fall to 6350 then rise, but you are concerned that it may fall further and wish to protect yourself if it does.

You therefore create a limit order to buy £5 at 6350 with a Stop Order at 6300.

The Stop Order you have left at 6300 will only become a live order once the original order to buy £5 at 6350 is executed.

Contingent Orders on OCO orders

Some providers offer a facility that allows clients to leave a contingent order on an OCO order.

Example:

The UK 100 March is trading at 6400.

You believe that if the market drops 100 points it will turn and move higher, but you also think that if the market moves 100 points higher from the current value it will then fall.

You therefore wish to leave an order that will benefit from either of these scenarios taking place, but you are also concerned that the market might move against you (after your initial order has been activated) and wish to limit your loss to 50 points.

You then place the following:

a Limit order to buy £10 a point at 6300 with a Stop at 6250.

an OCO Limit order to sell £10 a point at 6500 with a Stop at 6550.

As a result you have therefore left an OCO order to buy 100 points below the market or sell 100 points above the market, and have left contingent orders on your OCO orders to stop your loss at 50 points if the market moves against you once either of the original orders are executed.

Good for the Day (GFD), Good Till Cancelled (GTC)

A GFD order is an order that remains active until the end of that business day or until it is cancelled or executed.

A GTC order is an order that remains active until you cancel it or until it is executed.

All orders must be set to one of the above expiry times. If you have not stated a specific time then the order will be deemed to be Good Till Cancelled (GTC).

Conclusion

Using the various market orders can be a creative way of managing your trades.

Rather than sitting and watching a screen all day, you can utilize the various orders to get you both in and out of a market. Also the unique aspect of spread betting is that you are able to use the SSL order to protect your account if you believe the markets are too volatile for your personal risk appetite.

And of course utilizing the various methods can be integrated as part of your trading strategies as appropriate. Today’s trader has tools and mechanics which were a luxury in the past and can be used to a great advantage for the various markets.

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