# One-Cancels-the-Other (OCO) Order: Definition and Use in Trading

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> **Definition**
>
> A one-cancels-the-other (OCO) order is a pair of conditional orders stipulating that if one order executes, then the other order is automatically canceled. This mitigates risk and is often used in trading volatile stocks or managing market entry strategies. Although an OCO order is automatic, manual stop-loss placement is needed post-execution.

A one-cancels-the-other (OCO) order is a set of two orders; when one is executed, the other gets canceled. OCO orders often pair a [stop order](https://www.investopedia.com/terms/s/stoporder.asp) with a [limit order](https://www.investopedia.com/terms/l/limitorder.asp) on trading platforms. When either the stop or limit price is reached and the order is executed, the other order is automatically canceled. Traders use OCO orders to manage risk and enter the market.

OCO orders may contrast with [order-sends-order (OSO)](https://www.investopedia.com/order-sends-order-oso-definition-5190104) conditions that trigger, rather than cancel, a second order.

### Key Takeaways

*   One-cancels-the-other (OCO) orders involve a pair of orders where executing one automatically cancels the other.  
    
*   Traders use OCO orders, often with stop and limit orders, to manage risk in volatile markets.   
    
*   OCO orders can be employed for trading retracements and breakouts by setting buy and sell stops.   
    
*   Using OCO orders prevents potential issues like unintended short positions by automatically canceling the opposite order.   
    
*   For effective use, OCO orders require the same time frame for both stop and limit orders.

## Understanding the Mechanics of One-Cancels-the-Other Orders

Traders can use OCO orders to trade [retracements](https://www.investopedia.com/terms/r/retracement.asp) and breakouts. If a trader wanted to trade a break above resistance or below support, they could place an OCO order that uses a buy stop and sell stop to enter the market.

For example, if a stock is trading in a range between $20 and $22, a trader could place an OCO order with a buy stop just above $22 and a sell stop just below $20. When the price breaks above [resistance](https://www.investopedia.com/terms/r/resistance.asp) or below support, a trade is executed and the corresponding stop order is canceled. Conversely, if a trader wanted to use a retracement strategy that buys at [support](https://www.investopedia.com/terms/s/support.asp) and sells at resistance, they could place an OCO order with a buy limit order at $20 and a sell limit order at $22.

When using OCO orders to enter the market, traders must manually set a stop-loss order once the trade executes. The [time in force](https://www.investopedia.com/terms/t/timeinforce.asp) for OCO orders should match, so both the stop and limit orders have the same time frame.  

## Practical Example of a One-Cancels-the-Other Order

Suppose an investor owns 1,000 shares of a volatile stock that is trading at $10. The investor expects this stock to trade over a wide range in the near term and has a target of $13. For risk mitigation, they do not want to lose more than $2 per share. The investor could, therefore, place an OCO order, which would consist of a stop-loss order to sell 1,000 shares at $8, and a simultaneous limit order to sell 1,000 shares at $13, whichever occurs first. These orders could either be [day orders](https://www.investopedia.com/terms/d/dayorder.asp) or [good-'til-canceled orders](https://www.investopedia.com/terms/g/gtc.asp).

If the stock trades up to $13, the limit order to sell executes, and the investor's holding of 1,000 shares sells at $13. Concurrently, the $8 stop-loss order is automatically canceled by the trading platform. If the investor places these orders independently, there is a risk that they might forget to cancel the stop-loss order, which could result in an unwanted [short position](https://www.investopedia.com/terms/s/short.asp) of 1,000 shares if the stock subsequently trades down to $8.

> **Article Sources**
>
> 1.  U.S. Securities and Exchange Commission. "[Rule 6 Options Trading Rules Principally Applicable to Trading of Option Contracts](https://www.sec.gov/rules/sro/nysearca/2014/34-71293-ex5.pdf)," Page 20