What Is an Immediate or Cancel (IOC) Order?

Pros and Cons of Immediate or Cancel Orders

Advantages of Immediate or Cancel (IOC) Orders:

Execution Speed: IOC orders are tailored for expeditious execution, granting traders the capacity to seize instantaneous market opportunities.

Versatility: Applicable for both acquisition and disposal transactions, IOC orders enable traders to delineate both the volume and price parameters of the transaction.

Trade Command: By setting precise execution criteria, IOC orders augment traders' autonomy over the transaction process.

Disadvantages of Immediate or Cancel (IOC) Orders:

Potential Risk: The risk with IOC orders may be heightened in comparison to other order types, as they could result in partial fulfillments or potentially foregone trading chances.

Operational Complexity: Given their intricate nature, IOC orders may demand greater engagement and astute oversight from traders.

Incremental Costs: Certain brokerage firms might impose supplementary charges for the utilization of IOC orders, potentially escalating the cost of trading with this order type.

Traders are advised to thoroughly assess their trading approach and risk acceptance before employing IOC orders. It is imperative to measure the benefits and detriments of IOC orders against alternative transaction modalities to ascertain the most fitting choice for their trading pursuits.

How Immediate or Cancel Orders Work

When placing an IOC order, the trader will specify a limit price and a time-in-force (TIF) condition. The limit price is the maximum amount that the trader is willing to pay for the order, and the TIF condition is the time frame in which the order must be filled. For example, if the trader places an IOC order with a limit price of $100 and a TIF of 5 minutes, then the order will only be filled if the price of the asset reaches $100 within the next 5 minutes. 

Immediate or Cancel Orders vs. Good ‘Til Canceled Orders

Immediate or Cancel (IOC) orders and Good 'Til Canceled (GTC) orders constitute distinct order types within securities trading, each offering varying operational mechanics.

An IOC order mandates near-instantaneous execution, to the fullest extent possible, with any residual portion that remains unfilled being promptly annulled. Such orders cater to traders who prioritize expeditious trades and prefer not to have unfinished orders persisting in the marketplace.

Conversely, a GTC order persists in an active state until it achieves fulfillment or the trader intervenes to cancel it. This order type can endure over extended periods, ranging from days to weeks, or even months, contingent upon the trader's election. GTC orders provide an advantage to traders who establish a price objective and are prepared to await market movement to reach the specified level, thereby obviating the need for continuous monitoring of their orders.

Generally speaking, an IOC order aligns more closely with the tactical needs of short-term traders seeking immediate trade execution with automatic cancellation of unfilled portions, whereas a GTC order aligns with the preferences of longer-term traders who have a definitive price target in mind and prefer to maintain an open order until such time as it is executed or annulled. The selection between these order types should be determined by the individual trader's strategic approach and investment objectives.

The Bottom Line

In summary, Immediate-Or-Cancel (IOC) orders serve as an excellent instrument for traders seeking to swiftly initiate or close a position within the financial market. Distinguished from other order variants, IOC orders are structured to ensure expeditious execution or prompt cancellation. This characteristic is instrumental for traders in mitigating market exposure and achieving desired transaction speeds.