Immediate-or-Cancel (IOC) Order Explained

Immediate-or-Cancel (IOC) Order Explained

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The immediate or cancel order is an order type with instructions to fill the order immediately and any part that isn’t will be canceled.

Immediate-or-cancel orders instruct your broker to fill your order immediately or cancel the order.

It’s a liquidity-removing order duration preference similar to the “fill-or-kill order,” the only difference being that the IOC allows for partial fills.

Your order will be canceled within seconds of you sending it to the exchange with this order duration.

Either you’ll be filled on a partial or full position, or you won’t be filled at all because there were no shares or contracts on the order book at your limit price.

Immediate-or-Cancel (IOC) Order Example

For example, XYZ currently has a bid of $49.95 for 100 shares and an offer of $50.00 for 200 shares.

You want to make a large buy order but don’t want to tip your hand to the market that you’re building a large position.

So you try to cover your trail a bit by using an IOC order. You enter a limit buy order at $50.25 for 10,000 shares with IOC as your time-in-force.

This will send your buy order to the exchange and immediately buy all of the shares available below your limit price.

Once that’s finished, your order is canceled. This way, if you only get a partial fill, your order is sitting there on the order book, telegraphing your intention to build a large position.

You’re essentially telling your broker, “I want to buy up to 10,000 shares of XYZ immediately at any price up to $50.25, however only buy shares that are immediately available at this price and then cancel the order.” 

Note that if the price advances above your limit price between the time you send your order and it arriving at the exchange, your order will be cancelled immediately upon arrival, and you’ll buy no shares.

Time in Force or Order Duration Options

If you haven’t played around with different order types too much, you might be confused by terms like “time in force.”

You might see “TIF” next to the limit orders you send but not know what it means. It’s straightforward, but like most things in finance, it’s shrouded in jargon.

Time in force are simply instructions to your broker on how long to keep your order active before they cancel it or it gets executed in the market.

Some common examples of time in force preferences are good-til-canceled (GTD), which is an order that remains active as long as it’s not executed or canceled by you.

Fill-Or-Kill (FOK) is another standard time in force order, identical to the IOC, except that FOK orders don’t allow for partial fills.

Here’s a shortlist of some well-known time in force orders:

Many of these orders are only available through more advanced brokers that cater to active traders.

Immediate-or-Cancel (IOC) Order Fees

Because this order demands immediate execution, it’s a liquidity taking order, meaning most stock exchanges will charge you taker fees. If you’re unfamiliar with exchange fees, most of the fee structure is quite simple.

The typical structure charges you for taking liquidity and pays you to create liquidity.

In this case, hitting the bid or lifting the offer is taking liquidity.

Placing an order that doesn’t immediately transact with the National Best Bid or Offer (NBBO) creates liquidity.

Of course, taking liquidity makes the market less liquid, so it makes sense that exchanges punish you for doing so.

Fees vary depending on the exchange you route your order to. Lightspeed Trading publishes the rates they charge for each of their routes here, which should give you a gauge on how the fees work.

Note that these exchange fees and rebates typically only apply if you’re trading with direct market access.

Bottom Line

The immediate-or-cancel (IOC) order is one of the most aggressive order types.

The goal is to get filled as quickly as possible while revealing minimal information to the market about your preferences.
Credit: Warrior Trading

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