What is One Cancels Other (OCO) Order in Cryptocurrency, and How it Works?
We all know about the volatility of the cryptocurrency market. No one knows where the market will move in the future. Sometimes, it seems the possibility of a bearish and bullish market direction is equal.
In such conditions, what should a trader do?
Staying without doing anything and leaving it on market is not a good idea. Isn’t it?
In this scenario, considering OCO (One Cancels the Other Order) is the best option.
Let’s understand, what is an OCO order and how it works?
OCO order — The Core Concept
We all know that there are different types of orders that you can place while trading cryptocurrencies. You may know about pending orders, stop loss orders, market orders, take-profit orders, and more.
OCO order is a pair of conditional orders stipulating that if one order executes, then the order will be canceled automatically. Yes! OCO order allows a trader to place two orders at the same time. Usually, this order combines a limit order with a stop-limit order. But, only one order is executed while canceling the other one automatically as per the instructions.
In other words, we can say as soon as one of the orders gets partially or fully filled as per conditions, the remaining one will be canceled. Traders can use OCO orders to trade retracements and breakouts.
If a trader wanted to trade a break above resistance or below support, they could consider placing an OCO order that uses buy-stop and sell-stop to enter the market.
So, One cancels the other order is a pair of pending orders, one of which is canceled as the other one executes as per the set conditions by the trader. OCO order is used to minimize risk trading in the highly volatile cryptocurrency market. Both orders must be either buy or sell.
Whenever a trader can’t predict the market conditions, it’s worth placing two opposite orders, one of which will work and the second one will be erased simultaneously. While trading on the Binance exchange, one can use Binance OCO orders as a basic form of trade automation. This feature will let traders maximizing the take profit and minimizing the potential losses.
Let’s say BNB is trading between 210 BUSD and its resistance price of 240 BUSD. You would like to buy if the price drops to 200 BUSD or rises above 240 BUSD.
Here you can create an OCO order with a limit order at 200 BUSD and a stop-limit order with a stop price of 240 BUSD.
You can set stop-limit order’s limit price to 250 BUSD, so the order will be filled likely.
Whenever an order is fully or partially fulfilled, the other one will be canceled automatically.
Let’s understand it with another example:
If a stock is trading between $50 and $55, a trader could place an OCO order with a buy stop at just above $55 and sell stop at just below $50.
Once the price break below support or above resistance, a trade is executed and the corresponding one will be canceled.
Conversely, if a trader wanted to use the retracement strategy that buys at support and cancels at resistance, they could place an OCO order with a buy limit order at $50 and a sell limit order at $55.
Now, let’s understand how OCO orders work? But before moving further, you should know about what are pending orders?
Pending orders are the basics of OCO order.
Stop orders are represented by buy stop and sell stop orders. By placing such order type, a trader expects the price to break at a predefined level so that the trade will be open.
On the other side, limit orders involve buy and sell limit orders. Here the trader anticipates the price of an asset to bounce back from a certain level.
Experienced traders use OCO orders to mitigate risks and enter the market.
How OCO order works in crypto exchange?
As mentioned above, OCO orders help traders reduce their risks. Say you have a number of Bitcoin, BTC. As the market is volatile, a trader places an OCO order.
Assume that your BTC has a price of $100. Due to volatility, you predict that the price can decline, but you don’t want to lose more than $20. You place a sell stop order at $80.
This means that if the price of BTC drops down to $80, it will be sold at this level.
However, if the price increases to $120, the sell-limit order will be triggered.
It means your stock will be sold at $120.
Usually, a trader sets an OCO order when the market is highly volatile. Otherwise, the trader has to wait long before any of the orders work.
However, high volatility is also a pitfall for this order type. Let’s understand it with another example:
Imagine the market is high volatile. The trader has placed a buy stop order, and expecting that the market will rise. And on the other side, he places a sell stop order, considering a change of downtrend, or the buy limit order considering a rebound strategy.
However, after the buy stop order was triggered, the reversion in the market occurred. Here you know that the pending orders allow the trader to open positions without even monitoring the market.
All this means that you could miss that moment when the market moves in an opposite direction. As there is no stop-loss, there are chances that you may lose your funds.
High volatility is the reason for this situation, and therefore, you must use the OCO order smartly. For this, you must be pretty sure that the market will form a trend and it won’t turn around until it reaches the specific point.
OCO orders are beneficial to those traders with time constraints or for those who want to limit their risk. With One Cancels Other order, the orders for your take profit and stop loss levels are taken simultaneously, such that you have defined levels of rewards and risks.
If one of these levels hit, the other one is canceled automatically. For example, with a long position a stop-loss order will be placed below the market to limit the loss, and a limit order would be placed above the market to close the trade to take profit.
If the trade becomes a loss, the stop loss order will be activated, and the limit order is cancelled. If the price of an asset rises to the limit, the position is liquidated for a profit, and the stop-loss will go away. There are some exchanges which provide even variations on this order type also such as One triggers (OT) a OCO order (OT/OCO).
Let’s understand this too with another example:
In this condition, a trader would place a buy stop order above the resistance level, as the start of OT/OCO order. All this would have the effect of buying the crypto asset if it broke out through the resistance. When this order is filled, it will trigger an OCO order, which could include a stop loss order just below the resistance level, in case the breakout is failed, and a stop limit order at the target price which might be the level above the resistance.
Either way, when one of these orders is fulfilled, the other one will be canceled. So, either you cut your losses if the breakout retraces, or you can capture your profits if it performs in the same way as expected.
These orders are also known as bracket orders.
More examples to understand OCO order
OCO orders are similar to using the limit orders. These orders are beneficial to those traders who want to limit their risks. With OCO order, the orders for take profit and stop loss are taken simultaneously. And, if one of these levels hit, the other will be canceled.
Let’s say BTC is trading at $19, and you have a long CFD position at $18.75. You want to take profit of the price moves up to $19.50, and at the same time, you would want to be stopped out when the price moves down to $18.50. Here you can place an OCO order as sell BTC @$19.50, on limit OCO $18.50 on stop.
Here you can see that it is almost automatic trading, and all you have to do is to decide on the price levels which you want to enter. But this is not all about the benefit of an OCO order.
Let’s say you have limited funds, and you are interested in two assets A and B that are approaching to a good set up condition. Here you could split your account between them, and you can use OCO order if you want to invest in one or other asset without watching the market.
All you have to do is to place an OCO order to buy a number of coins for crypto asset A at a limit price, or buy a different number of coins for the asset B at a different limit price.
Here you can buy either an asset A or B, depending on which one will meet your conditions first. And, when that order is fulfilled, other one will be canceled.
In an OCO order, set of two instructions is given to fill out the orders:
· At the price you want or
· Once it reaches a certain target
Whenever the limit order is triggered, stop-limit order will be canceled automatically. If the stop price is reached, stop limit order will be executed, and the limit order will be placed.
When are the OCO orders beneficial?
OCO orders are beneficial for the traders if they don’t have time to watch the charts constantly, and reacting to the market as the price action unfolds.
You could use OCO order so that your reaction to a certain price is pre-determined. This allows traders to take the advantages of such opportunities automatically. One of the best ways to use OCO orders is to use resistance and support levels.
If there is a strong downward trend, and you think that the price will move down, you could request a buy order well below the support level and a buy order above the support level with an OCO order when there is a short position.
Price restrictions for OCO orders
For the sell orders, the prices have to follow the following rule:
· Limit price of the limit maker order>market price>stop price for the stop-limit order
For buy orders, the prices have to follow the rule as:
· Limit price of limit maker order<market price<stop price of the stop-limit order
If the last price for any asset is $500, then the sell OCO must have a limit price greater than $500, and the stop price must be lesser than $500. And, a buy OCO must have a limit price lesser than $500, and the stop price should be greater than $500.
How to use an OCO order in Binance?
· Login to Binance account, go to the exchange interface, and find out the trading area.
· Click on the ‘stop-limit’ order to open a drop down menu
· Select OCO
On Binance, OCO orders can be placed as a pair of buying or selling the orders. After clicking on OCO order, a new trading interface will be shown. And, this interface will allow you to set a limit and stop-limit order simultaneously.
Set the price of limit order and this order will be visible in your order book.
· Stop- the price at which your stop order will be triggered
· Limit- the actual price of your limit order after the stop is triggered
· Amount- the size of your order e.g. number of coins
· Total- the total value of your order
After placing OCO order, you can see the details of both orders in open orders section.
Say, you just bought 10 BNB at 0.0026833 BTC as you believe the price is close to a major support zone and will move up.
In this case, you can consider OCO feature to place a take profit order at 0.0030 BTC along with a stop-limit order at 0.0023600 BTC.
If your prediction goes well and price of BNB rises to or above 0.0030 BTC, a sell order will be executed, and the stop-limit order will be canceled automatically.
On the other, if you end up being wrong and the price of asset drops to 0.0023650 BTC, stop-limit order will be triggered. This would minimize your losses, in case the price is moving down continuously.
In the above example, stop price is 0.0023650 and the limit price is 0.0023600. This means that your stop-limit order would be triggered at the moment if the price reaches to 0.0023650 mark. But the actual trading price of your OCO order would be 0.0023600.
In other way, if BNB/BTC drops to or below 0.0023650, a limit sell order at 0.0023600 would be placed.
OCO is a simple yet powerful tool which allows all the Binance traders to trade cryptocurrencies in a more secured and versatile way. This order type is beneficial in locking profits, limiting risks, and for entering and exiting positions.
TrailingCrypto is one of the best crypto exchange platforms that allow its traders to place advanced order types to earn profits and minimizing risks. One can place OCO orders on Binance and other exchanges via this platform. Let’s understand, how:
Placing an OCO order on Binance via TrailingCrypto
The traders can add OCO orders at Binance, and via TrailingCrypto one can directly place an order on the Binance platform too. In trading terms, OCO orders are a way to sell a crypto asset at a higher price or to place a stop limit to sell it if the price goes below a certain price.
To place an OCO order on Binance, click on the arrow besides OCO and select OCO from the list. This will show more fields where you can set your price and quantity.
How to place OCO order:
· Create an account on TrailingCrypto and log in.
· On settings page enter your API Key and Secret key
· Select exchange, say Binance. (A drop-down menu on the top left)
· Select OCO order type.
· Select Base and Quote coin. E.g. Market: BTC
· Select the number of coins needs to be sold. E.g. 5 coins. (quantity could be in the fraction)
· Fill the Stop Loss fields. Refer to Stop Loss.
· Fill the Take Profit fields. Refer Take Profit
OCO feature is a simple yet powerful tool which allows TrailingCrypto users to trade in a safer and versatile way. It allows you to trade automatically via crypto trading bot to place orders on your behalf without watching the market. Deep understanding of the market and trading methods is must to place this order smartly.