Definition: An order stipulating that if one part of the order is executed, the other is automatically cancelled.
Usage: To set a limit order to take profit and a stop limit order to cut losses
An example to illustrate profit taking with an OCO order
A limit order is set at $3.90 to take profit and a stop-limit order is set at $3.40 to cut any possible losses. The OCO is triggered when the limit order at $3.90 is executed, cancelling the stop-limit order to sell at $3.40, which might otherwise be triggered when the price of the counter drops to $3.40.
An example to show how OCO can be used to minimise losses
A client takes up a long position on Counter ABC at $1.12. He submits an OCO order consisting of a limit order to sell at a limit price of $1.14 and a stop-limit order to sell at a limit price of $1.06.
The market price of the counter starts to drop rapidly afterwards, and when the market price hits $1.06, this executes the stop-limit order, which in turn triggers the OCO to cancel the limit order with the limit price of $1.14.