Immediate or Cancel Order (IOC): Benefits, Types, Limitations

If you have invested in or traded in the Indian stock market, you must have come across different types of orders such as market order, limit order, stop-loss order, and immediate or cancel (IOC) order. When it comes to retail investors, market and limit orders are most common, but the IOC order is a more advanced order type that provides effective control over trade execution.

IOC orders are useful in fast-moving markets where stock prices can change within seconds.

Regardless of whether you trade on the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE), understanding IOC orders may help you execute your trade efficiently.

In this article, we will explain everything you should know about the Immediate or Cancel (IOC) order, including its benefits.

Key Takeaways

• An Immediate or Cancel (IOC) order is executed immediately, and any part that cannot be executed is automatically cancelled.
• IOC orders can be partially executed; hence, they are well-suited to traders who require immediate executions without leaving any open orders in the market.
• Active traders and institutional investors use IOC orders when the market is highly volatile.
• Combining IOC with a Limit Order balances price protection with speed, preventing execution outside your set limit price.
• IOC orders suit fast-moving trading strategies where leaving unfilled orders open poses an unintended market risk.

What is Immediate or Cancel Order and its Benefits?

An Immediate or Cancel (IOC) Order is a trading order that tells the stock exchange to execute the order immediately. If the entire order cannot be completed instantly, the pending portion will be automatically cancelled.

For instance, if you have placed an IOC Limit order for purchasing 1,000 shares at the price of ₹1,500 per share, and if 700 shares are available at your desired price, then 700 shares will be bought immediately, while the remaining 300 shares will automatically get cancelled.

Benefits of IOC Order

• Fast trade execution: The most prominent advantage of using an IOC order is that it provides traders with immediate order execution. As soon as traders place their orders, the exchange will try to complete the execution process instantly.
• Better risk management: Pending orders may sometimes get affected by unexpected and sudden price changes due to volatility. IOC orders reduce this risk by instantly cancelling the non-executed part of the order.
• Greater trading control: Traders can determine the maximum price that they are willing to pay for the purchase or the minimum price that they want to receive from selling using IOC Limit Orders.
• Useful during volatile markets: Unexpected market events, such as Union Budget announcements, RBI Monetary Policy, quarterly earnings, or some global news, may lead to sudden price changes. Using IOC orders, traders can react promptly to these changes without the risks of order execution being delayed.
• Suitable for active traders: Intraday traders or other professionals who are actively trading use IOC orders for immediate execution or cancellation of their orders.

Key Features of IOC Order

• Immediate execution: The exchange tries to execute the order as soon as it arrives. If there are matching orders on offer, the order will be matched immediately, without delay in the order book.
• Partial execution: An IOC order enables partial execution if only a certain part of the requested quantity is available. The available quantity gets executed instantaneously, while the rest of the unfilled quantity gets cancelled rather than waiting for the order.
• Automatic cancellation: If no shares are available for immediate execution, the order is automatically cancelled without entering the exchange's order book. This helps cancel the order and avoids any future delayed execution.
• Price protection: With an IOC Limit Order, traders can specify their maximum buy price or minimum sell price. This is because such orders get executed only up to the maximum and minimum price point, thus enabling the traders to avoid any unwanted prices.
• Limited market exposure: Since the order is not left pending, traders reduce the risk of execution at an unexpected time due to sudden market movements. This makes IOC orders particularly useful in fast-moving or highly volatile markets where prices can change quickly.

How Does an IOC Order Work?

You placed an IOC Limit Order for purchasing 500 shares at ₹700 per share.

As soon as your order hits the NSE, the sell orders are:

• 250 shares at ₹700
• 100 shares at ₹700
• 150 shares at ₹702

Since your maximum purchase price is ₹700, only 350 shares will be purchased. The remaining 150 shares will be cancelled as they are available at a higher price than your limit. Once the cancellation takes place, the order is complete. It does not remain pending in the market.

Types of IOC Orders

• IOC Market Order: An IOC Market Order is carried out immediately at the best possible market price. If the complete order cannot be filled immediately, the remaining shares are cancelled. Price is not a priority for this order, but speed.
• IOC Limit Order: An IOC Limit Order is executed immediately but at the desired price. If enough shares are not available at your preferred price, the remaining quantity is automatically cancelled. Traders generally use IOC Limit Orders because of the price advantage they offer.

Limitations of IOC Order

• Partial execution: One should understand that there is no guarantee that your entire order will be executed. In case of unavailability of sufficient shares to match, only the part of the order will be executed while the remaining order will be cancelled.
• Lower availability in illiquid stocks: Less active stocks usually have a smaller number of buy and sell orders available on the exchange. That is why IOC orders can get partial or no executions in such cases.
• Not ideal for long-term investors: Usually, long-term investors want the complete execution of their orders, but not partial trades. They should use regular limit orders rather than IOC orders.
• Missed opportunities: In case some shares appear at the same price in the next few seconds after the placing of the order, the cancelled part of the order will not be executed. The traders have to submit a new order if they want to continue the trade.

IOC Order vs Fill or Kill (FOK) Order: What is the Difference?

While both orders must be executed instantly, there is one key distinction between them.

The IOC Order can be partially filled. On the other hand, an FOK Order must be executed fully. In case the total quantity is not available, then the whole order will be cancelled.

Example:

• IOC Order: Buy 1,000 shares -> 700 executed -> 300 cancelled.
• FOK Order: Buy 1,000 shares -> 700 available -> Entire order cancelled.

IOC Order vs Market Order vs Limit Order: Key Differences

Feature	IOC Order	Market Order	Limit Order
Execution Timing	Either executed immediately or cancelled.	Immediately executed using the best possible market price.	The order stays active until either executed, cancelled, or expired depending on its validity.
Price Control	Market or Limit IOC orders can be placed. Limit IOC gives traders an option to put a cap on their buying or a floor on their selling prices.	There is no price control. This order executes at the current market price.	Full price control. The order executes at the predetermined limit price.
Execution Guarantee	Execution not guaranteed. The available quantity is immediately executed.	Guaranteed partial execution in highly liquid stocks. Not guaranteed execution at any predetermined price.	Not guaranteed if the market does not hit the predetermined price.
Partial Execution	Yes. Only the available quantity gets executed, whereas the rest of the order is cancelled.	Yes. The order can be partially executed, in case there is not enough liquidity.	Yes. Partial execution of the order can take place, with the rest of the order pending till matching or cancellation.
Unexecuted Quantity	Automatically gets cancelled immediately.	Any unexecuted portion normally remains pending till it gets executed, cancelled, or expires.	Remains in the order book till execution, cancellation, or expiry.
Speed	Extremely fast because the order execution takes place immediately.	The fastest, because price is not an issue here.	Execution depends on whether the market reaches the specified price.
Risk of Price Changes	Minimal, because the order will either get executed immediately or get cancelled.	Higher, particularly in volatile market environments, due to price fluctuations (slippage).	Minimal, as the order will not get executed outside the set price range.
Best Suited For	Active traders that need immediate execution without any pending orders.	Traders who prioritise immediate execution over price.	Traders who value price over execution.

What This Means for You & What to Check Before Using IOC Orders

• Review market depth: Check the bid-ask spread and available liquidity before placing an IOC order. Low market depth can result in a partial fill or immediate cancellation.
• Check costs: Understand your brokerage and transaction charges, especially if partial fills could lead to multiple smaller executions.
• Consider execution priority: Decide whether immediate execution or completing the entire order matters more. If full execution is essential, a standard limit order or Fill-or-Kill (FOK) order may be more suitable.

Conclusion

Immediate or Cancel (IOC) Order is an order type which enables the trader to execute trades immediately while at the same time cancelling any remaining part that is not executed. The IOC order is particularly useful for intraday traders, institutions, and active traders who value speed.

It is important to note that IOC orders might not be the right choice for all investors. In case an investor wishes to buy or sell the total number of shares, they may prefer a Limit Order rather than an IOC order.