Immediate or Cancel (IOC) orders: how they work in volatile markets

What are Immediate or Cancel orders and how do they work in volatile markets? Let's find out together in this dedicated article

Trading in the financial markets has evolved greatly over the years and the digitalisation of platforms has allowed brokers to offer more tools that increase traders' chances of success. While there are no guarantees of profit, some tools help traders better manage their risks.

The “Immediate or Cancel” (IOC) order is one such advanced tool that allows traders to control their trading orders, allowing them to make quick decisions in volatile markets.

Let's analyze “Immediate or Cancel” orders and how they work in more detail.

Understanding “Immediate or Cancel” orders

“Immediate or Cancel” (IOC) orders are a tool that allows investors to quickly execute submitted orders and ignore any part of the order that cannot be filled immediately.

IOC orders focus on using the market price at the exact moment of execution, trying to fill the largest possible share from the processed position and automatically canceling any partial orders that cannot be executed.

Therefore, the market order is executed quickly, avoiding price fluctuations in volatile markets, especially in situations where liquidity decreases or flow changes due to market dynamics or news.

In unstable or volatile asset classes, it may be impossible to execute your entire order at the specified price. As a result, IOC orders try to fill as much of the quota as possible at the current price and ignore any part of the order that requires more processing time.

Ultimately, these orders aim to take advantage of the current price rather than execute the entire position.

How do IOC orders work?

Let's imagine that a trader wants to buy 500 Apple shares. He can choose the desired price for immediate execution and processing of the order, obtaining as many shares as possible at the preferred price.

Continuing with the example, if the trader wants to buy at $100 per share but the trading software only offers 400 shares at this price, the IOC order will be filled. This way, 400 shares will be purchased at $100 and the remaining 100 shares will be automatically deleted, regardless of the future direction of the price.

While the price has the potential to drop, “Immediate or Cancel” orders prioritize fast execution over price optimization.

In another scenario, if the current market price is $100 per share but the trader decides to buy at $99, the IOC order will not be processed and will be immediately canceled because the desired price was not directly reached.

Even though the price may drop to $99 a few seconds later, the IOC mechanism favors speed of execution over price, favoring immediate decisions.

Benefits of IOC Trading Orders

Investors have different styles; some speculate on prices and may wait to get the best deal, while others prefer timely execution using IOC orders, taking advantage of the following advantages:

Minimizing the impact of price fluctuations

Traders in stocks, cryptocurrencies and other volatile markets typically face the impact of rapid price fluctuations and momentary trend changes when placing orders. Therefore, IOC orders guarantee execution at the specific value you set and cancellation of any order subject to price changes.

Partial execution of the order

IOC orders also focus on flexibility, allowing traders to execute as many actions as desired at the specified price, whether it is the entire order or a part of it. This way, investors can take advantage of price opportunities that can change at any time.

IOC Orders vs. FOK orders

IOC orders are often compared to the “Fill-or-Kill” (FOK) mechanism, which has some similarities to the “Immediate-or-Cancel” (IOC) method, but with one key difference.

Both types of orders focus on a single aspect of the market, such as time, price or position. For example, an IOC order focuses on immediate processing at the specified price and ignores any part of the order that cannot be executed.

On the other hand, Fill-or-Kill (FOK) orders focus on completing the entire order in its entirety, adapting to any price and market fluctuations. The FOK order keeps the position open until the entire required quantity of stocks, coins or currencies is met.

While IOC orders are crucial in time-critical scenarios, it is essential to distinguish them from other trading mechanisms. Fill-Or-Kill (FOK), All-Or-None (AON), and Good-Til-Cancelled (GTC) orders all play a role in the world of trading. However, FOK orders, in particular, act as direct competitors to IOC orders, focusing on completing the trader's entire position.