An OCO (“One-Cancels-the-Other”) order, also known as a bracket order, is an order that allows you to place two orders, be it a combination of a limit order and a stop-limit order or a limit order and a stop order concurrently. It’s a pair of conditional orders specifying that if either one of the orders is executed, the other order is automatically canceled. In other words, when either the limit price or stop price is met, one of them will be executed while the other order will be terminated automatically. Generally, cryptocurrency trading veterans use OCO orders to mitigate risk, take profit, and enter the market.
How Are OCO Orders Used?
Traders usually use OCO orders to trade retracements and breakouts. This is because the limit order is typically used in reversal trading strategies, while the stop order is normally used in breakout trading strategies. If traders want to trade breakouts, they can opt to place an OCO order.
For example, suppose the price breaks above the resistance level or below the support level. Traders can then place a buy-stop or sell-stop at appropriate price points to enter or exit the market. On the other hand, traders trading retracements tend to buy when the price falls and touches the support level, and sell when the price rises but bounces back down at the resistance level. In such cases, traders can opt to place an OCO order with a buy limit or a sell limit.
OCO Trading Example
Here is an example of how to trade a breakout above the resistance level. Suppose a particular cryptocurrency’s price is within 0.002 BTC and 0.004 BTC. A trader can place an OCO order with a buy-stop slightly above 0.004 BTC and a sell limit at 0.004 BTC if they think the price will go up. To be more specific, the trader might set the stop price (trigger price) at 0.0045 BTC and the stop-limit order’s limit price at 0.005 BTC. When the price breaks above the resistance level, the stop-limit order is executed, and the limit order is canceled simultaneously.
To summarize, OCO buy orders involve buy-stop and buy limit orders, while OCO sell orders include sell-stop and sell limit orders. In addition, buy-stop and sell-stop orders, along with the trigger price of stop-limit orders, can be referred to as OCO stop orders. One thing to remember is that the OCO orders’ time in force should be identical in which both orders should have the same execution time frame. Note that canceling one of the orders before its execution will result in canceling the other order as well.
How to Set an OCO Order?
Let’s use Phemex’s platform for this demonstration.
- Go to Phemex.com and click “Select Market.” Select the cryptocurrency that you want to trade.
- Look for the Place Order area as shown below. Click on “Conditional” and then select “Limit.” Phemex categorizes OCO orders as conditional orders. Note that users need to pay for Phemex Premium to enable Conditional Orders.
- Key in the trigger price and limit price for the stop-limit order. Select the quantity of cryptocurrency that you want to trade.
- Choose either Buy or Sell depending on the market trend and your trading strategy.
- Tick “Stop Loss” as another order. Choose a loss percentage depending on your trading strategy. You may also tick “Take Profit” if you want to do so.
- Confirm your order.
An OCO order is a combination of a limit order and a stop-limit order or a limit order and a stop order with the same time in force. It specifies that if either one of the orders is executed, the other order is automatically canceled. OCO orders help traders mitigate risk, take profit as well as enter the market in cryptocurrency trading. They are common trading tools used by experienced traders.