How to Use One Cancels The Other Orders (OCO)

Oftentimes, traders have multiple strategies contingent upon each other. Investors avoid cumbersome, time consuming, stock watching by entering OCO orders. As its name implies, a one-cancels-the-other order designates a contingent trade stating that if one part of an order is completed, another part is canceled immediately. An OCO eliminates the need to closely monitor and maintain separate trade orders, affording investors the luxury quicker executions.

Example: A commonly used OCO order is when an investor places a stop-loss and a limit order on the same security, with one order canceling the other when it is executed first. A trader who is employing a trading strategy revolving around diversification may enter an order to buy equity securities and municipal bonds. If equity prices show signs of increasing in value and municipal bonds begin to decrease, a one-cancels-the-other order would execute the equity order and cancel the bond order.