Advanced trading order types -A practical explanation.

Advanced trading order types -A practical explanation.

In the dynamic environment of financial markets, choosing the right type of order is crucial for effectively implementing desired trading strategies. Three specific "Time in Force" order types - GTC (Good till Cancelled), FOK (Fill or Kill), and IOC (Immediate or Cancel) - offer traders the flexibility to tailor their orders according to individual preferences and market conditions. Through an example, we aim to explain their functionality and areas of application.

GTC (Good till Cancelled) - Valid Until Cancelled
The GTC order remains active until it is fully executed or manually cancelled by the trader. This order type is particularly suitable for traders who are willing to wait for the complete execution of all contracts at a set price and can cancel any uncompleted contracts at any time flexibly.

FOK (Fill or Kill) - Execute or Cancel
The FOK order must be executed immediately at the order price or better; otherwise, it is fully cancelled. Partially executed orders are not permitted here. This order type is ideal for traders who demand immediate and complete execution of their order.

IOC (Immediate or Cancel) - Immediate Execution or Cancellation
The IOC order must be executed immediately at the limit price or better. If the order cannot be filled immediately, the unexecuted contracts are cancelled. This option is advantageous for traders who desire quick execution but are willing to accept partial executions.

Practical Example
A trader wants to buy 10,000 contracts immediately, where the execution price must not exceed 11,800 USD. Given the current market situation with a last traded price of 11,799 USD and a market price of 11,820 USD, the various "Time in Force" execution methods offer different outcomes:

  • GTC: 5,000 contracts are immediately executed at 11,800 USD, and the remaining 5,000 contracts are queued in the order book waiting for execution.
  • FOK: Since less than 10,000 contracts are available in the order book, no execution will occur, and the order is cancelled.
  • IOC: 5,000 contracts are filled at 11,800 USD, and the remaining unexecuted orders are cancelled.

In addition to these specific order types, there are basic order types that every trader should know. These are located in the first part of our newsletter:

  • Market Order: Buying or selling a financial instrument at the current market price.
  • Limit Order: Placing an order at a specific price or better.
  • Stop Order: Becomes active when a certain price is reached and then turns into a market order.
  • Stop-Limit Order: A combination of stop and limit orders.
  • Trailing Stop Order: Automatically adjusts to the market price.

Choosing the right type of order can significantly influence an investor's trading strategy. By understanding and skillfully applying GTC, FOK, and IOC, traders can precisely align their orders with their trading goals and market conditions to maximize their chances of success.