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Key Points
The 'One Cancels the Other' (OCO) order allows you to place two orders at the same time. If one order is executed, the other will be automatically canceled.
Understanding limit orders, stop limit orders, and general order setup conditions is essential to effectively use OCO orders.
The OCO order can help you trade more flexibly and safely by locking in profits, limiting risks, and automatically entering and exiting positions.
Note: You should read our guide on limit orders and stop limit orders before proceeding.
What is an OCO Order?
An OCO order, or 'One Cancels the Other' order, allows you to place two orders simultaneously. This order is a combination of a limit order and a stop limit order, but only one of the two orders will be executed.
In other words, as soon as one of the two orders is partially or fully executed, the other order will be automatically canceled. Note that if one of the two orders is canceled, the other will also be canceled.
When trading on Binance, you can use the OCO order as a basic form of automated trading. This feature allows you to set two limit orders at once, helping you maximize profits and minimize losses.
How to use an OCO order?
After logging into your Binance account, go to the trading area as shown below. Click on 'Stop Limit' to open the dropdown menu and select 'OCO.'
On Binance, you can place an OCO order as a pair of buy or sell orders. You can find more information about OCO orders by clicking on the question mark.
After selecting the OCO option, a new trading interface will load. This interface allows you to set up both a limit order and a stop limit order simultaneously.
After placing the OCO order, you can scroll down to see the details of both orders in the Open Orders section.
Limit Order
A limit order allows you to buy or sell an asset at a specific price. This order appears in the order book and will only be executed at the price you set or at a better price.
Stop Limit Order
This is a 2-step process that includes:
Stop: The price at which your stop limit order will be triggered (for example: 553.34 USDT). Note that this order is labeled as Stop Loss (or SL Activation) on the OCO order interface on Binance.
Limit: The actual price of the limit order after the stop order is triggered (for example: 553.24). Note that this order is labeled as SL Limit on the OCO order interface on Binance.
Amount: The size of your order (for example: 5 BNB).
Total: The total value of your order.
Conditions for setting up an OCO order
For sell orders:
When you have a long position, you can set the stop price slightly below a key support level to minimize potential losses. If the price drops, the stop-loss order will be triggered. The support level can act as a safety net and is determined based on past behavior, where the asset tends to be bought by investors.
To increase the chance of execution, you can set the limit price (SL Limit) slightly below the stop price, as we did in the example below (Activate SL at 553.34 and SL Limit at 553.24). If the SL Limit is set higher than or equal to the SL activation level, the likelihood of the order not being filled will be higher, especially if the price drops too quickly.
For buy orders:
When you have a short position and want to use a buy order as a stop loss, you can set the stop price slightly above a key resistance level to minimize potential losses. If the price rises above the resistance level, your stop-loss order will trigger a buy order.
In contrast to the support level, the resistance level is where the asset price tends to face selling pressure. For a short position, these levels can act as a safety net and are also determined based on previous price action.
To increase the chance of execution, you can set the limit price (SL Limit) slightly above the stop price. If the SL Limit is set lower than or equal to the SL activation price, the likelihood of the order not being filled will be higher, especially if the price rises too quickly.
OCO Orders in Practice
Consider the price range below for the BNB/USDT trading pair. The white line at the top is the resistance level around 590 USD, while the white line below is the support level around 560 USD.
Now assume you want to open a long position in this price range. The current price is 577.46 USD, but you want to wait for the entry price closer to the support level (the white line below). Assume the entry price you want is 562.91 USD.
If the price does not drop to your desired entry price, you will not execute the trade. But if the price drops to the entry price, you will open a trade with a target of 589.52 USD and a stop loss at 553.34 USD.
If the price follows the blue line, your trade will incur a loss because the stop loss will be triggered (553.34 USD). For your trade to be profitable, you want the price to follow the yellow arrow (opening the order at 562.91 USD and taking profit at 589.52 USD).
In this case, the OCO order can encompass all potential outcomes, ensuring you lock in profits if the price moves as expected and limit losses if the trade does not go as anticipated.
In our example, the stop price is 553.34 USDT (activation price) and the SL Limit is 553.24 USDT (the price at which the order will be placed). This means your stop limit order will activate when the price reaches or falls below 553.34, while the limit sell order will be placed at 553.24 USDT. However, remember that if the price drops too quickly below 553.24, there is a risk that the limit order may not get filled.
Simply put, if BNB/USDT drops to or below 553.34, the limit sell order at 553.24 will be placed.
Summary
The OCO feature is a simple yet powerful tool that allows you and other Binance users to trade more safely and flexibly. This type of order can be useful when you want to lock in profits, limit risks, and even to enter and exit positions. However, it is important to have a clear understanding of limit and stop limit orders before using OCO orders. This article will help you grasp the information better and prepare for your trades.
Read more:
What is a Limit Order?
What is a Stop-Limit Order?
Five Risk Management Strategies
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