What is an OCO (One-Cancels-the-Other) order?

• An OCO order is a pair of conditional orders where the execution of one cancels the other.

• It is a risk management tool used by individuals to set specific entry and exit points for their transactions.

• OCO orders are used in various financial markets, including cryptocurrency, due to their volatile nature.

An OCO (One-Cancels-the-Other) order is a pair of conditional orders stipulating that if one order executes, then the other order is automatically canceled. This type of order often combines a stop order with a limit order on an automated trading platform. When either the stop or limit price is reached and the order is executed, the other order is automatically canceled. This strategy is used by experienced individuals to mitigate risk and enter the market.

Individuals can use OCO orders to trade retracements and breakouts. For example, if a cryptocurrency is trading in a range between $20 and $22, an individual could place an OCO order with a buy stop just above $22 and a sell stop just below $20. When the price breaks above resistance or below support, a transaction is executed and the corresponding stop order is canceled. Conversely, if an individual wanted to use a retracement strategy that buys at support and sells at resistance, they could place an OCO order with a buy limit order at $20 and a sell limit order at $22.

OCO orders are particularly useful for individuals looking to limit their exposure to risks. The possibility of simultaneously setting stop-loss and take-profit orders keep the potential risks at a bare minimum without diminishing the profitability of the transaction. OCO orders help individuals manage their emotions when trading, which may reduce the occurrence of emotion-based errors. Lastly, OCO orders provide an operational advantage as they allow individuals to automate their transactions, reducing the need for constant market monitoring.

Suppose an individual owns 1,000 units of a volatile cryptocurrency that is trading at $10. The individual anticipates that this cryptocurrency may experience significant price fluctuations in the near term and sets a price point of $13. For risk mitigation, they do not want to lose more than $2 per unit. The individual could, therefore, place an OCO order, which would consist of a stop-loss order to sell 1,000 units at $8, and a simultaneous limit order to sell 1,000 units at $13, whichever occurs first.

In the volatile world of cryptocurrency trading, OCO orders have become a popular strategy. They enable users to establish specific entry and exit points, automating their transactions and reducing the need for constant market monitoring. This is particularly useful in a market known for its wild price swings, helping individuals protect their profits while limiting losses.