What is IOC in share market?

If you are into share trading for some time now, you would surely be familiar with the Immediate-or-Cancel (IOC) order. This order is quite popular among large traders who need to execute bulk orders without impacting the price. IOC is also common among algo-traders and high-frequency traders as it allows them to jump in and out of the markets rather than standing in the market for too long. In fact, if you go through your online trading platform, then you will notice that the IOC option is available on your trading terminal.

What exactly is an IOC order in share trading?

IOC (Immediate or Cancelled) allows a user to buy or sell a security as soon as the order is released into the market. As the name suggests, if the order is not executed immediately on placement, it is automatically cancelled by the system. There is no action required from your side. This applies even if you are placing the order on your online trading platform. That brings us to the logical next question; what if only partial execution is available. The IOC order also permits partial match for the order and the unmatched portion is cancelled at the same time.

IOC is one of the many duration orders in share trading

An IOC order is one of several "duration orders" that investors can use. In a duration order, you can specify how long the order remains active in the market and under what conditions the order will be cancelled. An IOC is a zero duration order as it is cancelled almost at the same time. But there are other commonly used duration orders that include fill or kill (FOK), all or none (AON) and good till cancelled (GTC) orders. Typically, the online trading platforms which you regularly use will permit IOC orders.

IOC orders can be market orders or limit orders

Remember that IOC orders only have a condition of duration. Price conditions can be set at your discretion. Thus, investors can submit the IOC order either as a ‘limit’ order or as a ‘market’ order. Normally, when the markets are volatile with heavy volumes, you can place a limit IOC order. Similarly, when the markets are trending directionally with volumes, you can place a market IOC order. IOC order has no price attached and transacts only with duration condition. Hence, it is your choice whether you want to place a limit order or a market order. Normally many traders and investors confuse IOC orders with AON orders. There is a very subtle difference here. IOC orders only require a partial execution and it automatically cancels the rest of the order. However, in case of AON order, unless the entire quantity is available immediately, the full AON order gets cancelled.

Ideally, who should use IOC order?

The best application of IOC order is when you submit very large orders. Here, if your order stands in the market, it can influence the price so IOC is the best way. The advantage is that IOC also accepts partial execution unlike an AON which does not accept partial execution. This makes IOC more flexible. Secondly, IOC can be used extensively when you use algorithms and programs to trade. Here ,the machine can be programmed to jump in and out of the markets. IOC also has an added advantage. When you trade a large number of stocks, you may forget to cancel orders from the order book. You don’t have to worry about that in an IOC order.

Applying the IOC order in real time

For simplicity let us assume that you want to buy 100,000 shares of Tata Steel. You estimate that you can get the entire quantity at a difference of Rs.1. Here an IOC order would work best as you are in and out of the market in a jiffy.

Finally, a word of caution! If you keep placing IOC orders that only execute partially or don’t execute, then it increases your order/trade ratio. That is something SEBI tracks closely for monitoring market volatility. Use IOC orders sparingly, to the extent possible.