The views and opinions expressed in this article are the author’s [company’s] own and do not necessarily reflect those of CoinMarketCap. CoinMarketCap is not responsible for the success or authenticity of any project, we aim to act as a neutral informational resource for end-users. Now that you understand the fundamentals of a stop order and a limit order, below is how you can pair the two order types to implement an effective OCO order. For instance, you may have bought 5 ETH for 0.34 BTC due to speculation that ether will likely increase in value against bitcoin. You can then use OCO orders to minimize losses should your prediction be incorrect, or take profits if the outcome is in your favor. Full BioSuzanne is a content marketer, writer, and fact-checker.
If its sunny outside, you get the sunglasses but not the umbrella and vice versa. Choose a loss percentage depending on your trading strategy. Go to Phemex.com and click “Select Market.” Select the cryptocurrency that you want to trade. OCO orders may contrast with order-sends-order conditions that trigger, rather than cancel, a second order.
It specifies that if either one of the orders is executed, the other order is automatically canceled. OCO orders help traders mitigate risk, take profit as well as enter the market in cryptocurrency trading. They are common trading tools used by experienced traders. An OCO order is a way to place two different types of orders, such as a stop order and a limit order, at the same time. These orders are paired together so that when one order is executed, the other order is automatically canceled.
Advanced trading types: conditional orders
The crypto market is known for its wild price swings and how it offers more profit-generating opportunities. Although volatility unlocks mouthwatering opportunities, it also breeds risks. Therefore, traders tend to incorporate several trading techniques that curtail losses while optimizing profitability. The OCO feature allows traders to work in a safer and more versatile way by automating the aforementioned tasks, so they can lock in profits and minimize risk. Do note that while this is a simple tool, using it effectively requires a good understanding of limit and stop-limit orders.
One-cancels-the-other is a type of conditional order for a pair of orders in which the execution of one automatically cancels the other. Options trading entails significant risk and is not appropriate for all investors. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request.
A Must-ReadeBook for Traders
OCO orders is a tool that could help traders optimize their profitability. This is especially true for traders looking to trade highly volatile asset classes like cryptocurrencies. This strategy favors an automated approach to risk management and profitability optimization. The trader, named Joe, can set an entry order for Bitcoin at $20,000 and another one for Ethereum at $1,000. These prices signify the amount at which Joe intends to buy these assets.
It’s important to note that the paired orders cannot be executed at the same time, as the execution of one order triggers the cancellation of the other — as the name suggests. By using OCO orders, traders can automate their trades and reduce the need for constant monitoring of the market. Suppose an investor owns 1,000 shares of a volatile stock that is trading at $10.
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In addition, an OCO order tends to make trades easier as it allows traders to stick to predesigned trading strategies. An order-sends-order , aka order-triggers-other , is a set of orders stipulating that if the primary order executes, then one or more secondary orders also will be placed. A stop-limit order is a conditional trade over a set time frame that combines features of stop with those of a limit order and is used to mitigate risk. Bitfinex is a digital asset trading platform offering state-of-the-art services for digital currency traders and global liquidity providers. Bearing this in mind, it is imperative for traders to opt for an exchange platform that caters to users with their current level of trading experience. Let’s explore an example where a trader is interested in buying Bitcoin and Ethereum but does not have enough capital to invest in the two assets at once.
She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands. At the same time, you place 2 sell orders, one at stop loss for $23 and one at a limit of $27. When orders are placed for retirement accounts, a price-reasonability check helps prevent both OCO orders from executing in a fast market. If the secondary order is canceled, the primary order remains open as a separate order.
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With this, the trader has successfully taken advantage of an OCO order to increase returns while reducing the risk exposure. Here, the OCO order has two components, the first one is a limit order, which is to sell the stock if the price goes up to $55. The second component is a stop order, which is to sell the stock if the price falls below $45. When either of these conditions is met, the other order will automatically be canceled, which means that only one of the two orders will be executed.
To place an OCO orders pair, you have to chose aLimit order price and check the option OCO. A new field will appear, allowing you to set the stop price of the order pair. You can then place the orders pair by clicking onMargin Buy or Margin Sell. Sometimes in life, you can only have one thing or the other, but you can’t have both at the same time. You decide to spend it on an umbrella if it rains or on sunglasses if it’s sunny. You’re prepared for both possible scenarios but only one will come to fruition.
Key in the trigger price and limit price for the stop-limit order. Select the quantity of cryptocurrency that you want to trade. Having understood the use cases of OCO orders, it is time to learn how to execute one. Note that there is no standard procedure for implementing OCOs, as the process depends on the exchange platform you are using. Some exchanges offer a seamless user interface that provides easy-to-understand ways to set up OCOs.
This strategy is often used on more volatile stocks where price levels tend to fluctuate more dramatically. Many traders use OCO orders to minimise risk when entering a position. However, the most common reason for OCO orders is because it is a good exit strategy. Suppose an investor owns a stock that is currently trading at $50 per share.
If the primary order is canceled, the secondary order is also canceled. There are 5 types of conditional orders you can use depending on how you want to trade. When one order is fulfilled, the other is automatically canceled. As previously noted, unfortunately, it can’t be both sunny and cloudy outside. But if you apply the principles of an OCO order, you can still make the best of each potential outcome.
So why would a trader use an OCO order?
It is worth mentioning that OCO order is not peculiar to the crypto market as it is used in other financial markets too, including stocks. However, it has become a popular trading strategy for crypto traders due to the volatile nature of crypto assets. If the stock trades up to $13, the limit order to sell executes, and the investor’s holding of 1,000 shares sells at $13. Concurrently, the $8 stop-loss order is automatically canceled by the trading platform.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. You place a Contingent order to buy XYZ stock at a limit of $25 if the UVW index moves up more than 1.25%.