If you are a beginner looking to start your stock market investment journey, then learning about immediate or cancel order (IOC) is one of the most important things for your investment journey.
While using online investment platforms like Zerodha Kite, Upstox, or others, you will see that specific details need to be filled as you begin the buying process of any stock. These include specifying the number of shares you want to buy, price offers, order type, variety, and validity. The validity of your stock market order is what we are here to talk about.
What is an immediate or cancel (IOC) order?
In the validity section of your brokerage platform, you will see the two options of Day and Immediate or cancel order – IOC. When buying or selling shares, you have to select either Day or IOC to initiate your trade.
An immediate or cancel order (IOC) is the purchase or sale of securities intended to execute all or part of the order immediately and then cancel the leftovers. An IOC order is one of many long-term orders that can determine how active the order is in the market and under what conditions it has been cancelled.
Immediate or cancel orders attempt to execute immediately and cancel any unfilled portion. These orders only require partial exchanges and can be referred to as limit orders or market orders.
Investors use IOC orders in volatile markets to offset the current market price as much as possible.
Basics of an IOC Order
Investors can place either a limit or a market order using the IOC option based on specific requirements. The IOC limit order is placed at a specific price, while the IOC market order has no specified purchase price, and the shares are traded at the best selling (or buying) price.
An IOC order specifies that it must be executed as soon as it is published in the market. This ensures that you sell or purchase a stock almost immediately. If this is not done, the order is cancelled, post which it does not have the pending status. The order is cancelled immediately, and no action from the investor is needed.
An IOC is a ‘period’ order, which means that the investor chooses how long the order will stay in the market. IOC is a ‘zero duration’ order as the time between placing the order and execution is only a few seconds.
An IOC order may be set as a market or limit order. A limit order delineates that you can sell or purchase security only when it reaches a specific price. The transaction is done at the current price point when you initiate a market order.
Let us assume that you want to buy one hundred shares of company XYZ. The current price of XYZ’s shares is Rs. 145 per share, and you set the buy price at Rs. 143.70 or below per share. When you reach the validity portion of your buy process, you get to choose between DAY or IOC for the order’s validity.
Here, DAY means that if you initiate the buy order with the DAY option, your buy order will only be executed if the share’s price reaches your desired limit or is below it. Your order will stay pending for the entire day of trading (i.e., till 3.30 PM). But, if the price does not reach your set limit of Rs.143.7 by the day’s end, this order will expire (or get cancelled) on its own.
On the other hand, if you choose the immediate or cancel option, you will be able to buy the shares that are immediately available at your set price. If the number of shares you are looking to buy is available immediately in the volume, your IOC enabled order will fulfil the trade altogether.
But suppose you have placed an order of more shares than what is available. In that case, you will only be able to buy the ones available immediately, and the order for the remaining shares will get cancelled or expired immediately.
The availability of shares is shown in the market depth of the particular share you are interested in buying.
So, if you place the order for 100 shares using the IOC option and there are only, say, 42 shares available immediately at a price set by you (Rs. 143.7), you will be able to buy the 42 shares, and the order for remaining 48 will get cancelled simultaneously. It basically means that if your price is matched, the order will get placed immediately. If not, it will be cancelled immediately.
The difference between an IOC order and a day order is straightforward. If unfulfilled, a day order cancels after the trading day, whereas an IOC is ended when the security is unavailable.
When to use an IOC order – Benefits and importance
Investors use IOC instructions while submitting a large order to avoid having it filled at an array of prices. An ICO order automatically removes any part of your order that has not been processed.
To understand an IOC order, you need to understand the stock market better. When you open a Demat account and make a purchase or sell order, there is no guarantee that the transfer order will be fulfilled. It can take a long time between buying and selling the securities. If you place a purchase order but there are not many buyers, the wait for order completion will be longer. The waiting time results in many active positions, which can be confusing and challenging to monitor. Thus, the Immediate or Cancel Order comes in handy in such situations.
When is the IOC option effective?
Unlike an all or none order, IOC guarantees that you get access to whatever is available in the market as part of your buy or sell trade. You can add the IOC option to your online trading account. IOC enabled trades are also helpful if you use algorithms or trading programs with free investing services. This allows you to act faster and not have to track all the large orders you place.
Words of wisdom
With correct use, immediate or cancel orders can be highly effective. Multiple IOC instructions may be executed without having to keep track of their status for an extended period. Nonetheless, it would help if you used it sparingly because many partially completed IOC orders will throw your calculations off. If you keep putting IOC orders that only partially or never execute, your order/trade ratio will rise. SEBI closely tracks this to record market uncertainty. Thus, to the degree practicable, use IOC orders with caution and vigilantly.