The cryptocurrency market is known for its high price volatility, which offers opportunities for higher profits but also risks. Therefore, traders often tend to use various trading techniques or strategies to increase profitability and reduce losses.
One of these strategies involves the use of One Cancels the Other Order (OCO) orders.
One Cancels the Other Order (OCO) is a double conditional order that involves and stipulates that if one order is executed, the other order is automatically canceled. An OCO order combines a stop order with a limit order, usually on an automated trading platform. When the price of the stop order or limit order is reached and one of the orders is executed, the other order is automatically canceled. OCO orders are used by experienced traders to reduce risk and enter the market. OCO orders contrast with the OSO (Order Sends Order) order, which triggers a second order instead of canceling it.
Why Use OCO Orders?
OCO orders can be used by traders for some reasons. Here are a few of the reasons why traders prefer OCO orders:
- To limit risks
- For those who want to manage their emotions while trading
- For those who want a functional benefit
To Limit Risks
Stop-loss and take-profit orders are effective tools for traders to limit their risks and protect their potential profits. Setting these orders at the same time allows traders to limit potential risks without reducing the profitability of their trades.
For Those Who Want to Manage Their Emotions While Trading
Emotional control is an important factor for traders and managing emotions during trading is of great importance. Especially in a fast-moving and volatile market, emotions can play a big role in determining the best entry and exit points.
For a Functional Benefit
OCO orders allow orders to be executed and canceled automatically. This allows traders to manage their trades without the need to constantly monitor price movements or manually execute trades.
What Is Stop Order?
A stop order is used by traders as a risk management tool to limit losses or lock in profits. This order is triggered when the price reaches a certain level.
Stop orders are used in two different ways: stop-loss orders and stop-entry orders. Stop-loss orders aim to sell automatically if the asset falls to a set level below the market price. For example, a trader may place a stop-loss order at a certain price level when taking a long position in a particular cryptocurrency. If the price breaks below that level, the stop-loss order is triggered and the asset is automatically sold.
Stop-entry orders aim to buy an asset if it rises to a set level above the current market price. Stop-entry orders can be used during periods when the asset is experiencing an uptrend. For instance, if a trader wants to take a long position in a particular cryptocurrency and the price rises to a certain level, the stop-entry order is triggered and the trader's buy order is executed.
Stop orders are automatically triggered depending on market conditions and execute asset buy or sell trades. However, they may not exactly reach the expected target price level. Therefore, traders may not expect them to reach the target price level when opting to fill stop orders.
What Is Limit Order?
A limit order allows traders to set predetermined or defined prices to sell or buy an asset. The limit order is automatically triggered and trades when a certain price level is reached.
Limit orders give traders the flexibility to trade at any price level they wish. However, orders are not triggered and trades are not executed until the specified price level is reached. In addition, limit orders allow traders to trade based on specific price targets without making emotional decisions. However, the market can change quickly and orders may not be triggered before a certain price level is reached.
How to Use OCO Orders?
OCO orders help to manage risks. They are ideal for traders who want to identify the best entry and exit points. Depending on a trader's goals, there are three scenarios in which an OCO order can be used:
- Risk management in open positions
- Targeting price disruptions
- Deciding to buy between two cryptocurrencies
Risk Management in Open Positions
Traders prefer to place OCO orders when they have an open position. In such cases, traders are trying to limit risk in the belief that the market may move in their favor. In addition, an OCO order allows traders to preserve, rather than lose, opportunities to profit when the market moves in their favor.
Targeting Price Disruptions
OCO orders are effective when the price of an asset appears to be trading within a certain range and is ready for a breakout. Usually, this is considered ideal after a period when an asset's price tends to break above its resistance level or fall below its support.
Deciding to Buy Between Two Cryptocurrencies
When torn between two cryptocurrencies, OCO orders are used to decide where to invest the asset. An OCO order is not an asset allocation strategy. Therefore, funds can only be invested in one of the two assets in question. Furthermore, an OCO order can be set, which initiates a buy order when one of the preferred assets reaches a set price target.
How Is OCO Order Executed?
The execution of OCO orders may differ depending on the exchange platform. Some platforms offer a user-friendly interface, making it easy to set up OCO orders. These platforms usually offer and allow users to choose the order types they want to execute at the same time. For instance, to create an OCO order on an exchange platform, go to the order creation page and select the OCO option. This will open an interface where stop-loss and take-profit levels can be set and two orders can be set to run simultaneously.
Other exchanges may require users to manually match orders. In this case, users should create stop-loss and take-profit orders separately and use an appropriate strategy to link them together. For example, once users have created the stop-loss order, a command can be added that automatically triggers the take-profit order when this order is triggered when the price reaches a certain level. Traders need to understand whether the exchange platform they are using supports OCO orders and how they are implemented. Choosing a user-friendly platform helps traders to create and manage OCO orders more easily. Also, the reliability and liquidity of the platform should be assessed. Traders need to choose an exchange platform that best suits their experience level and needs.
