What is IOC in the Share Market?

Last Updated: 9 Dec 2024

Global financial markets saw a crash because of the Covid-19 crisis for a short period. While long-term investors curtailed their activities, intra-day traders continued to trade in the stock market. This is because traders often try to profit from such a volatile market.Millions of trades take place at any given time in the market, and an active trader may have several active trades simultaneously. It can become tedious to track all the unexecuted positions. To avoid the situation, one can place an Immediate or Cancel Order or IOC order.

What is IOC?

A brief understanding of the share market is necessary to understand the IOC order. The IOC (Immediate or Cancelled) allows an investor to buy or sell a share as soon as the order is placed in the market, failing which the order will be removed from the system. It is a duration order and cancels out if it is not executed immediately.

For instance, if you place an immediate or cancel order for 100 shares of XYZ, but 100 shares are not available in the market at the moment. The order will cancel out as soon as you place it. An IOC order does not create active positions, it is either executed or gets cancelled out. One doesn’t have to intervene to cancel the order, it is an automatic process. IOC is essentially a duration order, which is a category of orders that have a specified duration. In the case of IOC, the duration is a few seconds.

What is the need for an IOC?

One may enter the market by opening a free trading account, but without a clear understanding, it can be difficult to generate profits. The threshold for entry has reduced with the advent of online trading accounts, which is extremely easy and convenient to open. So, after getting an online trading account, when you place a buy or sell order, there is no certainty of the order getting executed. There might be a mismatch between the number of people trying to buy a stock and people trying to sell it. If you place a buy order, but there is a lack of sufficient sellers, you may have to wait for the completion of the order. The waiting time creates many active positions, which may sometimes be confusing or difficult to track.

Flexibility with IOC

An investor can set the IOC as a market or limit order.

• When you place a market order, the shares are bought or sold at the prevailing market prices.
• With limit orders, you can specify the price at which you want to buy or sell a particular share.

In the case of immediate or cancel orders, there is also a provision of partial fulfilment of the order. Suppose you place an IOC order to buy 100 shares of ABC company. There are not enough shares of ABC to be sold at the moment, but since an IOC order is executed immediately, you will be allotted 20 shares, while the order for the balance of 80 shares will be cancelled automatically

When is an IOC Order Effective?

• An IOC order is effective when immediate execution is necessary. It must be filled instantly, or the unfilled portion is cancelled, making it suitable for traders who need quick action in volatile markets.
• IOC orders are ideal during periods of high market volatility. They allow traders to capitalise on rapid price movements without leaving lingering orders that could result in unfavourable fills.
• An IOC order helps reduce market impact while placing large orders because it ensures that only available shares are bought at once and any unfilled portions are cancelled.

When to Use an IOC Order?

An IOC in share market is best used when you need quick execution of trades without leaving unfilled orders in the market. It is ideal for large orders to minimise market impact, especially in volatile conditions. Additionally, IOC orders are useful when managing multiple trades simultaneously, as they reduce the risk of forgetting to cancel pending orders. This order type also allows traders to set specific price limits while ensuring immediate action on available shares.

Difference Between Day Order and IOC Order in Trading

• Time of Execution: A day order stays open throughout the trading day and automatically expires at the end if not executed. In contrast, an IOC order needs immediate execution; any unexecuted portion is cancelled in seconds.
• Order Status: Day orders stay in the pending list until the end of the day. IOC in share market does not linger; unfulfilled portions are cancelled immediately.
• Use Cases: Day orders suit traders who can afford to wait for specific prices, and IOC orders are perfect for execution where time is of the essence, especially in big trades.
• Risk Management: Day orders risk market movement up to expiry, but IOC orders mitigate this as they cancel unfilled portions immediately, preventing unwanted positions.

Advantages & Disadvantages of IOC Order

Here are the advantages of IOC in share market –

• Speed of Execution: This is for fast trades so that the trade can be executed instantly in fast markets.
• Flexibility: Usable for buy and sell transactions with the quantity and price specified.
• Partial Fills: It allows the execution of available shares while automatically cancelling the unfilled portions.
• Risk Management: Minimises exposure to market fluctuations as the unfilled orders get automatically cancelled.
• Efficiency: Allows multiple orders without constant monitoring and reduces manual errors.

Here are the disadvantages of IOC in share market –

• Risk of Partial Fills: This can result in missed opportunities if the entire order isn’t executed.
• Complexity: More demanding and time-consuming compared to orders with simpler types.
• Potential Fees: Some brokerages may levy additional fees to use an IOC order, further increasing costs.
• Market Impact Concerns: Large orders placed as IOC can impact market prices, especially if the security is thinly traded.
• Confusion from Multiple Orders: Managing many IOC orders will make tracking overall positions cumbersome.

Example of IOC Order

An Immediate or Cancel (IOC) order is executed immediately in part and/or in full, and whichever is left unfilled will be cancelled instantly. For example, imagine a buy order of 1,000 shares of a stock with an instruction of limit at ₹ 4,000 are there, but only 600 are available at that price. In such a case, the system would immediately fill the order for those 600 shares. The remaining 400 shares will be automatically cancelled so there will be no pending orders.

This type of order is particularly useful in fast-moving markets where traders need to act quickly to secure shares without waiting for better prices. It allows for quick decision-making and helps manage risk by preventing unfilled orders from lingering in the market. Overall, IOC orders are effective tools for traders looking for immediate execution and flexibility in their trading strategies.

How To Place IOC Order

Placing an IOC in share market is quite complex and requires a comprehensive understanding of the process and its nuances. Here’s a simplified step-by-step guide to help you get through placing an IOC order.

Step 1: Select a Reliable Trading Platform

Firstly, choose a broker with a good reputation and a dependable trading platform. After reviewing their brokerage charges, platform usability, and overall market credibility, open a Demat and trading account with them.

Step 2: Build Your Knowledge Base

Before engaging in trading, you should learn about the different types of orders, such as IOC orders. You can make informed decisions by knowing their purposes and how they work in the market.

Step 3: Pick Your Stock

Select the stock you want to trade. Observe its price movement, trading patterns, and historical data to ensure it meets your investment strategy before making an order.

Step 4: Define Your Order Type

Set “Immediate or Cancel (IOC)” on your chosen trading platform as the order type. Some platforms may refer to this as “Fill or Kill (FOK).” While setting up the order, make sure to:

• Specify whether you are buying or selling.
• Enter the desired quantity of shares.
• Set a suitable price for the transaction.

Step 5: Double-Check Your Order

Carefully review all order details before finalising. Verify the stock name, quantity, price, and order type to ensure accuracy, as mistakes can lead to unwanted outcomes.

Step 6: Submit and Confirm

Once you’re satisfied with the order details, submit it. You should receive a confirmation message or notification from the platform indicating your IOC order has been successfully placed. Monitor the order status on the trading platform. IOC orders are executed instantly, either fully or partially, with the unexecuted portion being automatically cancelled. If your order isn’t filled to your satisfaction, consider revising the price or placing a new order based on the market conditions.

Conclusion

An immediate or cancel order can be immensely effective if used properly. One can execute multiple IOC orders without the need to track their status for a long time. However, it should be used sparingly as a large number of partially fulfilled IOC orders can disturb your calculations. To start trading using IOC orders, you can open an IIFL Demat and trading account which is an all-in-one account and you can make multiple investments through a single platform.

Frequently Asked Questions

Which is better, IOC or Day?

The choice between an IOC and a Day order depends on trading strategy. An IOC in share market is preferable for immediate execution, especially in volatile markets. At the same time, a Day order is suitable for traders waiting to fill their orders throughout the trading day. 

What are the benefits of IOC orders?

IOC in share market provides several benefits, including immediate execution, flexibility in trading strategies, and the ability to avoid market impact from large orders. They also allow for partial fills, minimising risk by cancelling unfilled portions quickly and enabling traders to act swiftly in dynamic market conditions.

What is the validity of an IOC order?

An IOC in the share market has no validity period; it must be executed immediately upon placement. If the order cannot be filled at that moment, any unfilled portion is automatically cancelled. This characteristic makes IOC orders ideal for traders seeking quick execution without lingering orders.

What are IOC and GTD trading?

IOC in share market requires immediate execution, while GTD (Good Till Date) orders remain active until a specified date or until they are executed. IOC orders focus on speed, whereas GTD orders allow traders to wait longer for their desired price without cancellation.

Which is better, IOC or Day?

The preference between IOC and Day orders hinges on trading goals. IOC in the share market is better for immediate execution in fast markets, reducing market impact. Conversely, Day orders are suitable for traders who prefer to wait for specific price targets throughout the trading day without immediate cancellation.