An OCO(one cancels the other) order allows you to place two orders at the same time. It combines a limit order with a stop-limit order but only one of them can be executed. This means that as soon as one of the orders is partially or fully filled, the other is automatically canceled. Manually canceling one of the orders will also cancel the other one.

What is a One-Cancels-the-Other Order (OCO)?

OCO is an instruction given by the trader to automatically force one market order to stop if another reaches its target first. Usually, the two order types are stop-loss and take-plofits orders. 

An OCO order is a pair of conditional orders. If one order comes to fruition, then its corresponding order is automatically cancelled. The dual orders (usually a stop order and a limit order) are featured on most cloud-based trading platforms. When a trade reaches either the stop or limit price and the order is executed, its partnered order is automatically cancelled.

How Does It Work?

When you place an OCO order:

- You specify a target price for your limit order and a stop price for your stop-loss order.

- If the market price reaches the limit order price, the limit order is executed, and the stop-loss order is automatically canceled.

- Conversely, if the market price hits the stop-loss price, the stop-loss order is executed, and the limit order is canceled.

Example Scenario

Suppose you are trading shares of Company XYZ:

- You buy at $100 and set an OCO order with:

- Limit Order: Sell at $110 (target price)

- Stop-Loss Order: Sell at $95 (stop price)

In this case:

- If the price rises to $110, your limit order executes, and you make a profit.

- If the price drops to $95, your stop-loss order executes to limit your losses.

Benefits of Using OCO Orders

1.Risk Management

OCO orders help manage risk by ensuring that you have a predefined exit strategy in place. This is crucial in intraday trading where prices can be volatile.

2.Automation

They automate the trading process, allowing you to set your targets and stop-loss levels without having to monitor the market constantly.

3.Flexibility

You can adjust the limit and stop prices based on your trading strategy and market conditions, providing you with greater control.

4.Reduced Emotional Trading

 By having preset levels for taking profits or cutting losses, OCO orders help reduce the emotional stress that can lead to poor trading decisions.