Let us define immediate-or-cancel orders.
Immediate-or-cancel orders, also known as IOC orders, instruct brokers to execute orders either full or partial immediately. All remaining parts of the order that can’t proceed to execution immediately will be subject to cancelation, hence the name immediate-or-cancel order.
The choices are only two: a partial or full fill position or no fill at all due to lack of shares at the desired limit price.
A sample scenario that explains an IOC order thoroughly
Lito is looking for potential stock shares that he can buy. He came across AA Company with outstanding records and history. They currently set out a bid where there are 500 shares at $19.50 and 3,000 shares are at $20. Lito plans to purchase a massive number of shares because he thought this offer is an excellent opportunity to generate high returns.
However, Lito does not want any trader to follow his trails. He wants to conceal that he is buying a large number of shares and thinks that an IOC order might be a great help. He places an IOC limit order of 2,000 at $19.50.
The IOC order would then fill up 500 shares at $19.50 because these are the only stock that can immediately proceed to execution since those 500 shares matched Lito’s desired price. The remaining 1,500 shares will automatically cancel since the price is $20 — it is above $19.50. As we have said, the order does not have to be fulfilled as a whole. Even if only some of the parts are available, the execution can proceed.
Let us create different possibilities for this IOC scenario.
So, what will happen if Lito decided not to conceal his trails and places an IOC limit order of 2,000 shares with an offer price of $20? Since there are 3,000 shares available at the same price as Lito’s desired price, then the IOC order will execute and fill all 2,000 shares at $20.
In another perspective, Lito places an IOC order of 1,000 shares at $20 when the stocks are at $21 at the moment. A few hours later, the price declined to $19. There will be no execution because the IOC order got canceled almost immediately after submitting. The stock’s current price during that time is higher than Lito’s desired price.
More on immediate-or-cancel orders
Now that we have cited an example that can paint the IOC idea for us, let us define time-in-force. Time in force, also known as order duration options, instructs brokers about how long the order should remain active in the market before cancelation or execution.
Some examples include good-til-canceled orders or GTC orders. If the trader does not cancel or execute, then the order will remain active. We also have a fill-or-kill order or FOK order. FOK order is somehow like an IOC order. However, FOK orders can only proceed to execution if fulfilled as a whole and immediately. Other famous time-in-force orders are day-til canceled orders or DTC orders and market-on-close orders or MOC orders.