OCO, known as the one cancels the other order, allows a trader to place two different sell or buy orders simultaneously. This can be the combination of a limit sell order and a stop-limit order. However, the primary thing to pay heed to here is that only one can be executed while the other gets canceled. Hence the name one cancels the different order.

Having two orders gives the trader a lot of advantages that provide automation and ease. These advantages we will discuss later in the article. Now that we have a bit of an introduction regarding the OCO order and how OCO one cancels the other, we can proceed forward.

Defining some key terminologies:

This section will cover some terms that will make your OCO order journey a lot easier and more fun!

The Limit Price:

A limit price is the maximum or minimum price at which a trader wants to buy or sell a security. The brokerage will not execute this order unless a buyer or seller can be found for the other side. Limit prices allow traders to enter or exit the markets strategically.

A trader can use a buy limit order or a sell limit order. This allows the trader to add or subtract their position at a designated price. A limit order is the most popular order type for an OCO order.

Stop Limit Order:

This limit order is combined with a stop loss, which, when triggered, with the aid of a limit order, aids in mitigating the risk to a certain extent.

A stop limit order is traditionally used to help traders exit a trader for a loss. Like a limit order, this type of order will only execute at a specified price. A stop limit order is typically placed beneath the current price of the asset, so if the underlying asset falls in price, the order will be triggered. This is one of the most popular orders to use with an OCO order.

Market Price:

Also known as the current market price, at which the buy or sell order will be executed. These prices are subject to change, which means the trader does not precisely know what price these orders will execute. A market buy or sell order can be quite dangerous for traders in illiquid markets because the trader will likely lose a large amount of money getting filled.

These orders should only be used when the trader needs to exit or enter quickly and doesn't care about the price. Traders will only execute these orders if they believe a further up or downside will make the initial loss getting filled worth it.

Stop Loss:

A stop loss is that price within a stop order, which triggers the formation of a market order. Here, the market sell orders will be triggered when the traded price is equal to or below the stop price.

Trigger Price:

This is the last traded price when your buy or sell orders become active to be executed on the trading platform.

How does the OCO Order work in Thinkorswim?

Once you fill in the details, create and log into your Thinkorswim account and see the exchange interface. Thereby clicking on the menu, you go to "Active Trader." Once that is done, you will see another "Active Trader" button on the right side of the screen, which you will click to proceed with the OCO order.

These buttons can be seen below on the Thinkorswim screenshot.

The next step is to select "OCO" under template. This toggled-on allows the trader to enter an OCO order for any security traded. The placements of the limit and stop prices can be adjusted, and the order types are used.

Thinkorswim OCO Trade Example

In the screenshot below, you can see a live trade with an average price of $22.89 (indicated by the yellow bar). Currently, this trade is up to $2,178, and the trader can now place a stop limit order and limit sell order. But, first, let's discuss the benefits of this all.

1. A stop limit order can allow the trader to protect the gains of this trade in case the stock falls.

2. A sell limit order can allow the trader to exit for a profit if the trade hits their price target.

3. The OCO order allows both of these orders to sit simultaneously while only one can get executed. This allows the trader to walk away, automate the trade, not worry about missing the profit-taking potential or the moment to take a loss or protect profits. An OCO order can help traders execute without emotions.

What are the benefits of an OCO Order for you?

There are many benefits that newbies, as well as experienced traders, can reap if they opt for OCO orders to sell, trade, and earn profit for themselves on the market. Some of them are inclusive of:

Set risk to reward ratio:

During trading of an OCO order, the primary component to note is that when an investor places an order, you will be in control of assessing the take profit, along with any cut loss points. This means that you will have autonomy over the take-profit order and the exit points during the trade execution.

The monitoring is minimal:

Do you have commitments? On the same side, kids to take care of and a family to run? Then, rejoice in knowing that placing an OCO order and then monitoring it is less of a hassle than other technical indicators. Therefore, the added advantage is that you can keep a check, but you won't have to be constantly glued to your screen and neglect those around you.

Let the Trade Play:

The biggest mistake traders make in the beginning is typically taking profit too early or keeping a losing trade. Most traders make these mistakes because trading is highly emotional, and dealing with money makes it hard to do the right thing. The OCO order can solve this problem for traders because once the order is set, the trade will work itself out.

If it were a bad trade, the stop loss order would execute, and the trader will end up with their calculated loss. If the trade is good, the sell limit order will execute, and the trader will have their estimated gain. Less intervention and introducing automation can be crucial for traders everywhere.

Note: The advantages listed above may not be the same for all. This is because trade for every individual is subjective, depending on numerous external and internal factors. Lastly, please understand that we are not financial advisors here at Market Moves LLC. We are people, who have come to admire, the world of trading and want to showcase our experience to our audience in a broader platform. 

Conclusion: The OCO Order is a Fascinating Item In The Realm of Trading Today!

If you are looking forward to trading, whether as a beginner or an individual with years of experience, then the OCO order is a viable trading methodology that may act to your advantage.

What essentially takes precedence here is that you are first aware of specific terms mentioned above, such as the buy order, one of the orders, stop order, etc. Secondly, you need to conduct your legwork, too, because the notion of trade is highly subjective once more. It is not a one size fits all condition, and you have to be mindful of things such as, for example, the minimum or maximum price which you wish to set, how much quantity your wish to trade, and whether the market is in an optimum condition for you to conduct that trade in the first place.

In a nutshell, we hope that this article proved helpful for you and clarified a few things along the way. We cannot wait to come back and enlighten you with another exciting edition real soon!

FAQs:

A few questions that our audience tends to ask us regarding OCO Orders are:

What are OC and OCO?

Both the order types are stipulations that have to be followed - these are conditional orders, which means that if the trader places for one order to be executed, the OCO one cancels the other.

What are OCO and OSO Orders?

The following are both opposites of one another - it is where one order among certain specific open orders will cancel the other order, also popularly known as the second order.

What is a Stop Order?

When the stock price reaches a specific price, popularly known as the stop price, your order will become a market order.

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