OCO Order - Trade with two Orders Simultaneously and Manage Your Risks
by Antonio Boston marketing managerToday, many traders
are attracted towards crypto investments due to high potential returns. In
order to invest in the crypto trading market, it’s important for a trader to
have enough knowledge about the market and trading strategies. And, this is the
reason why crypto exchange like Binance offers a lot of interesting features
and order types. These features help traders to generate profits in long term.
One such order type attracting the traders is OCO
Order.
Now the question is, what is an OCO Order?
OCO stands for
One-Cancels-the-Other order which allows traders to place two orders at the
same time and cancel one order automatically whenever the other order is
executed. This is an effective tool to secure gains in the market.
OCO order is a
combination of two orders which can be used simultaneously on Binance including
a limit order and a stop-limit order. But whenever you place an OCO order, the
execution of only one order is possible. This means you can manage your risk by
placing a take profit order and then stop-loss order at the same time. By using
OCO orders Binance, you automate most of the trading automatically and reduce
the need to actively monitor the trade.
The most common orders
which can be used as OCO orders are:
- Stop-limit order- An order that
helps you to manage risks. This order closes your position, locks in
losses, and then prevents losses.
- Take-profit- This order locks
in profits
Example
Let’s understand this
order with an example:
Suppose the current
market price of any crypto asset say Stock X is $100. Now, you can place an OCO
order with Taking Profit at $120 and Stop Loss at $80.
If the market goes
perfectly well and hits the $120 mark then, the Take Profit option will be
executed. But at the same time, the Stop Loss order will be cancelled
automatically.
And, imagine if the
market doesn’t go well, and the price hits $80, then a stop loss order will be
executed and at the same time take profit order will be cancelled out.
Placing an OCO order
The very first step to
place an OCO order is placing a primary order i.e. Take Profit order. As an
investor, it’s time to head to the crypto trading platform and input all the
required details. Once you are done, it’s time to select an OCO order from the
available order types under the option advanced order or conditional order.
After placing a
primary order, it’s time to enter secondary order. For this order, you can add
conditions like Trailing take Profit, trailing
limit sell, trailing stop, etc.
Once you are done,
there will be a preview available. Click on confirm and let the system works
for you.
There are two main
purposes for placing an OCO order:
- Managing risks in open
positions
- Entering either a long or short
trade following a breakout
How OCO order works in
crypto exchanges like Binance?
As mentioned above,
OCO orders help traders to reduce their risks. Usually, a trader sets an OCO
order when the market is highly volatile. Otherwise, the trader has to wait for
a long before any of the orders work.
However, high
volatility is also a drawback for this order type. But, how? Let’s understand
it with an example:
Imagine that the
crypto trading market is highly volatile. The trader has placed a buy stop order,
and expecting that the market will rise soon. And on the other side, he places
a sell stop order, considering the changes in the downtrend, or the buy limit
order considering a rebound strategy.
However, after the buy
stop order was triggered, the deterioration in the market occurred. Here in
this scenario, the pending orders will allow the trader to open positions
without even monitoring the market.
All this means that
the trader could miss that moment whenever the market moves in an opposite
direction. As there is no stop-loss, there are chances that you may lose your
investments.
High volatility is the
reason for this situation, and therefore, it’s better to use the OCO order
smartly. For this, you must be pretty sure that the market will form a trend
soon and it won’t turn around until it reaches a specific point.
OCO orders are
beneficial to those traders who want to limit their risks or those who trade
with time constraints. With an OCO order, the orders for your take profit and
stop loss levels are taken simultaneously, such that you have predefined the
levels of rewards and risks.
If one of these levels
hits in the trade, the other one will be canceled automatically. For example,
with a long position, a stop-loss order will be placed below the market to
limit the losses, and a limit order would be placed just above the market to close
the trade to take profit.
When are the OCO
orders beneficial?
OCO orders on Binance
or any other exchange are beneficial for the traders if they don’t have time to
watch the charts constantly, and are unable to react to the market as the price
action unfolds.
In such conditions,
you could use an OCO order so that your reaction to a certain price is
pre-determined. Placing this order type will allow traders to take advantages
of such opportunities automatically. One of the best ways to use OCO orders is
to use resistance and support levels.
If there is a strong
downward trend in the market, and you think that the price will move down, you
could request a buy order well just below the support level. And, also you can
place a buy order above the support level with an OCO order when there is a
short position.
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Created on Nov 13th 2023 08:03. Viewed 113 times.