Table of contents
There is a valuable tool empowering traders with greater efficiency, even amidst market turbulence, called the IOC order. Imagine a trade order that needs to be executed immediately and otherwise cancelled automatically. It is the core of the intriguing concept of IOC in the stock market.
Let’s explore a complete overview of what is an IOC order, its mechanics and distinctions from market and limit orders.
What Is an IOC Order in Trading? Full Meaning & Uses
IOC’s full form is Immediate or Cancel order. The SEBI (Securities Exchange Board of India) defines an IOC order as an order to trade financial assets that attempts to execute all or a portion of the order immediately and then cancels if it remains unfulfilled.
Clarifying the concept, IOC order is a type of trading order that represents swift execution with accuracy. An IOC order allows traders to give instructions to execute the order immediately at the optimal price. Otherwise, cancel it if immediate execution is not possible.
This distinct characteristic separates stock market IOC orders from other order types in the stock market.
How Do IOC Orders Work? Functionality & Execution
There are two operating conditions of IOC orders to define how they work – immediate execution and cancellation.
When a trader places an IOC order, the trading system is instructed to fulfil the trade order at the best available price. If the prerequisites for immediate trade execution are met, the trading platform executes the trade, and the order is regarded as complete.
On the other hand, if the order cannot be fulfilled immediately, the entire or partial order is cancelled to stay aligned with the trader’s strategy. In this manner, IOC orders balance the trader’s prompt responsiveness and the market dynamics, effectively mitigating the potential for losses.
IOC Orders vs Other Order Types: Key Differences
Utilising IOC orders, traders instruct to execute their orders at the optimal price at the right entry or exit point; otherwise, opting for trade cancellation if immediate fulfilment is not feasible. It differentiates an IOC order from conventional order types – limit, market, and day trades.
Quick comparison of different order types:
| Order Type | IOC Order | Market Order | Limit Order | Day Order |
| Execution Speed | Rapid | Quick | Dependency on price | Dependency on time |
| Timeframe | Immediate or Cancelled | Immediate | Variable | Same trading session |
| Price Control | Moderate | Limited | High | Moderate |
| Suitability | For swift execution and minimise risk | For quick execution | For precision and price-sensitive | For capitalising on day’s price range |
Benefits of IOC orders for traders
As market scenarios can turn as rapidly as headlines emerge, IOC orders are considered a strategic step, enabling traders to respond promptly and precisely to changing scenarios. The benefits of IOC orders extend beyond speed and accuracy:
- Minimising slippage risk: Slippage is the difference between the execution and expected price that can risk potential profits. Thanks to IOC orders in the share market, traders can benefit from the price near their expectations. This element appeals to traders who prioritise precise execution.
- Flexibility: The provision of partial fulfilment of the order makes these orders flexible. Another aspect of flexibility is placing a market or limit order. Traders can place an IOC order as a market or limit order.
- Increased success rate with minimal delay: Market volatility brings opportunities and challenges. IOC orders can help traders navigate challenges and seize opportunities. Seeking to capitalise on rapid price movements, they can enter or exit a position in the market with minimal delay. It increases the odds of capturing favourable prices that might otherwise slip away in an instant.
- Precision to elevate trading strategies: The effectiveness of short-term trading strategies often lies in precision. Whether it is about engaging in scalping, momentum trading, or others, traders can consider IOC orders for the high level of accuracy required for such trading approaches’ success.
When Should You Use an IOC Order in Trading?
- Large orders, especially for low-volume stocks, can influence the prices if they remain open for long time. Therefore, these orders are considered most effective when traders want to execute significantly large orders without impacting the markets.
- IOC orders are also considerable when one takes multiple positions in the market but finds it challenging to monitor each trade. To avoid any risk of loss due to an open trade until the trading session ends, traders can consider this order.
IOC Orders in the Stock Market: Examples & Applications
An Immediate or Cancel (IOC) order is a type of stock market order that either executes immediately at the available price or gets canceled if no immediate match is found. Unlike limit orders that can stay open for a long time, IOC orders focus on instant execution, making them useful for traders looking to buy or sell quickly.
Examples of IOC Orders in Action
- Buying a Stock at the Best Available Price
Suppose a trader wants to buy 1,000 shares of Reliance Industries at ₹2,500 per share. If only 600 shares are available at that price, the order will execute for 600 shares, and the remaining 400 shares will be canceled automatically. - Selling a Large Quantity Without Waiting
A trader wants to sell 500 shares of Infosys at ₹1,600. If only 200 shares have immediate buyers at that price, those will be executed, and the remaining 300 shares will be canceled. - Day Traders Using IOC for Quick Trades
High-frequency traders (HFTs) and scalpers often use IOC orders to execute partial trades instantly without the risk of their order staying open and affecting their strategy.
Applications of IOC Orders
- High Volatility Trading – IOC orders help traders capitalize on quick price movements without leaving orders pending.
- Large Orders in Liquid Markets – Institutions placing large orders may use IOC to get partial execution while minimizing impact costs.
- Avoiding Order Queues – Traders who do not want to wait in the order book prefer IOC to ensure instant execution or cancellation.
Risks & Limitations of Using IOC Orders
While IOC orders offer speed and convenience, they come with certain drawbacks:
1. Partial Execution Risk
Since IOC orders execute only the available portion, traders may not get their full desired quantity. This can be problematic in illiquid stocks where there are fewer buyers and sellers.
2. High Cancellation Rate
IOC orders are canceled if no matching price is found, which means traders must constantly monitor their orders and reattempt if needed.
3. Slippage & Price Impact
If the market is moving quickly, traders might not get the exact price they expected, especially in volatile stocks where bid-ask spreads change rapidly.
4. Not Suitable for Long-Term Investors
IOC orders are designed for short-term trading and not for investors looking to build positions gradually over time.
5. Limited Use in Low Liquidity Stocks
In stocks with low trading volume, IOC orders might frequently get canceled without execution, leading to inefficiencies for traders.
How to Place an IOC Order in Your Trading Platform
Placing an IOC order is straightforward, and most online trading platforms provide an option for it. Here’s how you can do it:
1. Log in to Your Trading Account
Open your trading platform (e.g., Zerodha, Upstox, Angel One, Groww) and navigate to the stock you want to trade.
2. Select Buy or Sell
- Click on the stock name and choose the Buy or Sell option.
- Enter the quantity of shares you want to trade.
3. Choose the IOC Order Type
- Under Order Type, select Immediate or Cancel (IOC) from the drop-down menu.
- Choose between Market Order (best available price) or Limit Order (specific price).
4. Set the Price (for Limit IOC Orders)
- If you want to buy or sell at a specific price, enter your limit price.
- If the order is not executed immediately at this price, it will be canceled.
5. Confirm and Place the Order
- Double-check the details and click on Place Order.
- If a matching price is available, the order will execute; otherwise, it will be canceled automatically.
6. Monitor Your Orders
You can check the order status in the Order Book of your trading platform. If the order was only partially executed, you might need to place another order for the remaining shares.
The closing
IOC orders enable traders to seize opportunities, manage risks, and optimise their trading strategies like never before.
Whether you are a seasoned trader who wants to refine your approach or a newbie keen to understand varied trading strategies, unlocking the potential of IOC orders can help you in today’s dynamic financial markets.
FAQs
An immediate or cancel (IOC) limit buy order is a directive used in trading where the investor instructs to buy a security at a specified limit price or better, and if the order cannot be filled immediately, it is cancelled. This type of order ensures that the investor does not pay more than the desired price for a security and avoids the risk of the order hanging in the market if it cannot be executed quickly.
IOC validity in trading refers to the duration for which an IOC order remains active in the market. An IOC order is a short-lived order that must be executed immediately after it is placed. If it cannot be executed right away due to the absence of a matching sell order at the specified limit price, it is automatically cancelled. This type of order is particularly useful in fast-moving markets where prices can change rapidly.
An IOC order is valid for a very brief period, essentially a few seconds. It is designed to be executed as soon as it is placed on the market. If the order does not find a match immediately, it is cancelled without any delay. This ensures that the trader does not miss out on the desired price point due to market fluctuations.
There is typically no penalty for placing an IOC order. The primary consequence of an IOC order is that if it is not executed immediately, it gets cancelled, and the trader may miss the opportunity to trade at the desired price point. However, there are no additional financial penalties imposed by exchanges for the non-execution of IOC orders.
An IOC order is better for those who seek immediate execution and are not willing to wait for the order to be filled, whereas a day order is suitable for traders who are willing to wait throughout the trading day for their order to be executed. A day order remains active until the end of the trading day if not executed immediately, while an IOC order is cancelled right away if not executed.