In Forex trading, a One Cancels the Other Orders (OCO) order combines the features of a stop-loss and limit order; the first limits losses while the second locks in gains. This particular type of order is quite popular since it is one of the simpler to learn and is easy to use.

OCO orders in Forex

Let’s look an example to illustrate how an OCO order works. An investor has a pairing of US dollars to Swiss francs which trades at 1.4625. Should the exchange rate for this pairing rapidly change, the investor might decide to minimize his losses by selling when the currency’s value lowers to 1.4600; in this case he would issue a stop-loss order when it goes down to 1.4575. This stop-loss order is converted to a market order and will be fulfilled when this price is reached.

Should the price increase, instead, it does not help the investor as he has no option to place an order to sell when the market price rises. A trader may speculate that a currency’s value will rapidly rise over a relatively short period of time and then drop back to normal levels, expecting, in the example above, that it will reach 1.4725. The currency may get higher than this, but they could also lose the chance to profit from the trade. In this case they would issue a limit order to execute a trade at a profit of 100 points. This may not be the peak value, but it does give the investor a gain.

Risk Managemed with Forex Orders

So, an OCO order is placed with a broker to specify an action to occur when a set of conditions are met for a pairing. For a simultaneous stop order of 1.4575 and a limit order at 1.4725, one of these rates must occur for a trade to be executed while the other part of the order gets canceled. An OCO order could also be pleased which specifies one currency at a specific rate and the other currency in the pairing also reaches a predetermined rate. Options for mixing and matching limits vary by broker and type of account.

OCO orders are one out of many tools available to investors trading on the Forex market to minimize loss and realize gains.