OCO stands for one-cancels-the-other and as the name hints, a one-cancels-the-other spread betting order empowers you to link two simultaneous opening orders so as to take on two views on the same market. When one of the two orders is triggered, that order is executed while the remaining order is automatically cancelled.
“You can combine limit orders with stop-losses to devise even more sophisticated trading strategies. O.C.O (one cancels other) means that when order is triggered the other order is cancelled. For example, you can place a bet to buy on a dip and then do one of two things: sell if price subsequently rises by more than 10 per cent (take profits), or sell if the price falls more than 5 per cent (stop loss). As soon as one of the sell orders is triggered, it cancels the other order.”
Example of an OCO Order
Let’s say an announcement on the non-farm payrolls numbers is due for release at 1.30 and you want to trade on the back of these numbers. The FTSE index is currently at 5600, so you decide to place an OCO order to buy at 5650 and another to sell at 5550. That way, whichever order is triggered first is executed, while the other order would be automatically cancelled. This would allow you to enter a trade whichever way the market goes.
Of course you can also use OCO (one-cancels-the-other orders) on stop losses and limit orders. For instance, if you thought that the FTSE was set to rise, you could buy the FTSE 100 index at say, £10 per point on 5600 and place an OCO order to close your spreadbet at 5550 or 5650, whichever price level was hit first.
Using O.C.O. Orders Trade Example
Spread betting provider’s March Dollar/Yen quote is currently 83.26 – 83.34
You believe the Dollar will strengthen and buy at £2 per tic at 83.34
Provider’s March Dollar/Yen quote rises to 85.34 – 85.42
You place an O.C.O (one cancels other) order: a stop loss to sell £2 per tick if the Dollar/Yen falls to 83.34 (if triggered this will result in a break even trade), and a limit to sell and take a profit if the Dollar/Yen rises to 86.34.
Your limit order is triggered and you sell £2 per tick at 86.34
This closes your bet and you make a profit of £600 (86.34 – 83.34 = 300 ticks x £2)
The stop order to sell at 83.34 is automatically cancelled by the system