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Much of what we call forex or stock trading mostly involves watching the market and then instructing the broker to either “buy here” or “sell here”. That may sound simple, but it isn’t. Markets move quickly, and sometimes you want to prepare for more than one possible outcome. In that case, traders use different types of orders, and the One-Cancels-the-Other (OCO) order is one of the most flexible options out there. This article breaks down what OCO orders are, shows you how they work, and explores the scenarios you can use them. But before we get there, let’s take a brief look at trading orders in general.
Understanding Trading Orders
A trading order is the set of instructions you give to your broker to buy or sell a trading instrument. The instructions include specific conditions that must be met before executing the trade; that is, when and at what price should the broker execute the trade. Put simply, a trading order is a pre-programed command for your trading account that automatically acts for you.
Normally, you’d have to sit and watch price charts all day, and then execute trades when you spot an opportunity. Instead, you set an order in advance to open or close a trade automatically.
For example, say you want to buy the EUR/USD currency pair whose current price is 1.0700. You believe that the pair will climb if it first reaches 1.0750. So, instead of waiting and watching, you set a Buy Stop Order at 1.0750.
After you’ve placed the order, you can go about your day. And if the price does move up and finally touches 1.0750, your broker automatically buys EUR/USD for you at that price. The trade is now open without you having to be at your trading desk.
Types of Trading Orders
Trading orders fall into two main categories: basic orders and other (advanced/specialized) orders. Basic orders are simple “do this” commands and are often executed quickly. They can be market or pending orders.
- Market orders: Buy/Sell right now at the current best price
- Pending orders:
- Execute only when price reaches a specified level
- Two main types to know:
- Limit orders: Buy lower or sell higher than current price (catching better prices).
- Stop orders: Buy/Sell only when the price reaches a worse level, to catch a new trend or to protect me from a big loss.
Advanced orders, on the other hand, add conditions for more control and strategy. That is why you may hear traders referring to some of these orders as “strategies.” These commands introduce special instructions or triggers, such as executing only if certain prices are reached, protecting profits, reducing losses, or combining multiple orders that interact based on market conditions. OCO and other types of orders like stop orders, trailing stops, stop-loss, and take-profit are advanced orders.
So, What Is an OCO Order?
The OCO order is exactly what the name suggests: it is a single bracket that holds two pending orders. This could be a stop-loss and a take-profit order, but only one can execute. In other words, this order type lets you give your broker two possible instructions, while making sure only one will ever go through.
Why would anyone want this? For starters, markets don’t always move in a straight line. Sometimes you expect a big move, but you’re not sure whether it will be upward or downward. So, instead of guessing, you set up two orders to cover both scenarios. Once the market chooses a direction, one order executes, and the other disappears.
Source: Sigmanomics
How OCO Orders Work
The OCO setup is all about setting two conditional orders: one above and the other below the current price. That’s all. That way, you let the market decide which path to take and your strategy will manage the outcome automatically.
Let’s see how you can put this strategy to work:
Step 1: Decide on the market setup
Say you want to trade EUR/USD and the current price is 1.1000. After extensive technical analysis, you find that the pair has established support at 1.0950 and resistance at 1.1050. And you believe that a break above 1.1050 could lead to a rally, or a break below 1.0950 could trigger a sell-off, but you aren’t sure on the direction yet.
Step 2: Place two linked pending orders
You then set two instructions in a single bracket:
- A Buy Stop just above resistance at 1.1050.
- A Sell Stop just below support at 1.0950.
Step 3: Wait for the market to choose
Two scenarios are a possibility depending on what direction the market chooses. If the price rises and hits 1.1050, the Buy Stop order will activate and the broker will open a long trade. At the same time, the Sell Stop order will cancel instantly.
But if the price falls past 1.0950, the Sell Stop order will activate, opening a short trade. The Buy Stop order will immediately cancel.
In both cases, you were ready for the breakout and avoided entering into two opposite trades.
Step 4: Manage the position
After entry, you can still manage the trade by adding a stop-loss and take-profit. Many trading platforms even let you include those conditions inside the OCO itself, creating a fully automated plan.
When to Use OCO Orders
This order type is handy when you want to prepare for multiple scenarios but only act on one. See the table below for the most common situations where you can use them:
Scenario | Description | How the strategy helps |
Breakout trading | Price is consolidating between clear support and resistance levels. | Whichever direction the breakout goes, the strategy helps you catch it without gambling. |
News events (periods of high uncertainty) | Major economic events like central bank decisions, employment reports, or earnings announcements. | Positions you to profit from volatile moves in either direction without predicting market reaction. |
Range trading | The currency pair or stock has been bouncing reliably between two price levels. | Place orders at both boundaries so you’re in the trade whichever level breaks first. |
Overnight or weekend protection | Markets can gap significantly when they reopen after hours or weekends. | Helps catch these moves or protects against unexpected price jumps when you can’t monitor positions. |
Managing open positions | Combine a take-profit and a stop-loss. | It protects profits and limits losses automatically on an existing trade. |
Advantages and Limitations of OCO Orders
Advantages and Limitations of OCO Orders
OCO orders are a tool, and like all trading tools, they are as beneficial as they can be disadvantageous. Let’s see some of its strengths and weaknesses.
Advantages
- Automated risk management: It sets predefined exit points for both profit and loss.
- Flexibility: It helps you prepare for both upward and downward moves (breakouts) without committing to one too early.
- Convenience and time efficiency: It ensures that orders execute and cancel without your input, so you don’t have to watch the market constantly.
- Operational safety: Prevents conflicting positions by ensuring only one order in the pair executes.
Removes emotional decision-making: Your trading plan is set in advance based on technical levels, so there’s no room for panic or hesitation when the breakout happens.
Limitations
- No guarantee of execution: In fast markets, prices may jump over your levels and skip both orders.
- Whipsaws and volatility: Sudden spikes can trigger one side prematurely, canceling the other before the real move happens.
- Platform dependency: Not all brokers or trading platforms support OCO functionality.
- Learning curve: Beginners may find the logic confusing at first, especially when linking multiple conditions.
