ForexNewsNow – An order cancel order trade (OCO) forex trade, also known as a one cancels the other or order cancels other trade, is a unique type of forex trade. It lets you bet on both sides of the market if you are unsure if the price is going to go up or down. It also lets you trade without having to watch the market pip for pip. Understanding Order Cancel Order (OCO) Forex TradesOCO trades can help you become the best forex broker you can be, but they are also complicated and for U.S. citizens it is an illegal trade to make.
What is an OCO trade?
An order cancel order trade (OCO trade) is a trade that is a mix of a normal limit order and a stop loss order. In the trade, you will place two orders. The one order will be placed above the current spot price and the other order will be placed below the current spot price. When the price of the currency goes up or down one of the orders is triggered. The other order is then automatically canceled once the other order is triggered. So if the price of the currency goes up, the order above the old spot price is triggered and the order below it is canceled. If the price of the currency goes down, the order below the old spot price is triggered and the order above the old spot price is cancelled.
Why Use OCO Trades?
OCO trades very useful in several circumstances. However, they are mostly used during times when the market is showing resistance or support in the chart. Using an OCO trade will allow you to trade if the currency breaks through the support or resistance and also if there is a rally in the price and it moves away from the support or resistance lines.
The biggest advantage of using OCO trades is that you don’t have to watch the market closely or even be completely sure which direction the currency will move. By being able to open contrary trading positions, you can automatically trade when one of your predictions comes though.
A Real Life Example
Here is a real life example of how you might use an OCO trade.
Assume that the EUR/USD spot price is currently at 1.3050. The graph has been showing signs of support so that if the currency breaks though 1.3005 you think it will slide more. However, all day there have been short rallies where the currency appreciated in value only to come back down to the support line. You would like to trade into a rally if it happens, so this is a great time for an OCO trade.
To execute the OCO order, it you would place a buy order for 1.3105 and a sell order at 1.2995. If the market rallies, you will buy the currency and be in a great position to sell it before it comes back to the support line. Likewise, if the support is finally broken, you will be in a great position to sell while the market slides. In both cases, the other order will be canceled and once you set the order, you don’t have to worry about perfect timing and watching your graph.
Legality of OCO Trades
Not all forex brokers will allow you to make OCO trades. Before you start trading, read online broker reviews to find out if the trades are allowed in the broker’s platform or not.
Additionally, OCO trades are illegal for U.S. residents. This is because of fears of market manipulation. While it would be incredibly difficult to manipulate the forex market, the price of individual stocks and bonds can be manipulated by using OCO trades. Placing multiple buy and sell orders with different brokers increases the volume of trades for that stock. Volume is an indication of interest in the security and others in the market could be fooled into buying into the stock thinking news is going to break.