OCO order — a useful tool for risk management when trading cryptocurrencies

OCO (One Cancels Other) orders represent a powerful mechanism that allows market participants to set two conditional orders with opposite scenarios simultaneously. Once one of the orders is triggered and executed, the other is automatically canceled. This feature significantly simplifies trade management and reduces risk through automation of decision-making processes.

Advantages of OCO Orders for Trading

OCO orders combine multiple types of conditional orders into a single system. Traders can simultaneously place a conditional market order and a conditional limit order for the same asset, preparing for different market development scenarios.

Key advantages of OCO orders:

• Simultaneous management of two scenarios: Market participants can set upper and lower limits for one asset, preparing for both price increases and decreases
• Efficiency in margin trading: Margin requirements are calculated based on a one-sided volume, saving trader capital
• Automated execution: The system instantly cancels the corresponding order when the first is triggered, relieving the participant from manual management

Limitations of OCO orders:

• The feature is not available to API users, who can develop similar strategies independently
• OCO orders can only be used in spot trading and spot margin trading
• When using conditional limit orders, there is a risk of the order triggering without subsequent execution, which will still lead to the cancellation of the corresponding pair

How the OCO Order Mechanism Works and Main Rules

An OCO order is configured with two trigger directions: one aimed at the upper price boundary, the other at the lower, relative to the current asset price. When one trigger is activated, the other direction is automatically canceled.

For a buy OCO order:

• The trigger price for the lower limit (take profit) must be below the current market price
• The trigger price for the upper limit (stop loss) must be above the current price

For a sell OCO order:

• The trigger price for the lower limit (stop loss) must be below the current price
• The trigger price for the upper limit (take profit) must be above the current market price

When placing an OCO order, only one side of the asset’s cost is reserved, allowing for more efficient use of trading capital.

Important notes about order types:

• Both conditional market and conditional limit orders are supported
• Conditional market orders require only setting a trigger price
• Conditional limit orders require setting both a trigger price and a target execution price
• When a conditional limit order in an OCO pair is triggered, the corresponding stop loss or take profit is canceled, even if the limit order itself is not executed

Practical Scenarios for Using OCO Orders

Scenario 1: Market Entry Strategy

Imagine the asset is trading around $27,000, with support at $25,000 and resistance at $30,000. The trader wants to buy if the price drops to support or if it breaks resistance. They set an OCO buy order:

1. Lower limit — conditional market order with a trigger at $25,000 (for entry on decline)
2. Upper limit — conditional market order with a trigger at $30,000 (for entry on breakout)

Possible outcomes:

If a decline occurs: Price drops to $25,000, triggering the lower order, which executes at the market price. The upper order at $30,000 is automatically canceled.

If a rise occurs: Price rises to $30,000 without dropping to $25,000. The upper order triggers and executes, while the lower order is canceled. The participant is prepared for both scenarios — entering on support during a decline or on a breakout during an upward move.

Scenario 2: Exit Strategy

Suppose the participant owns 2 ETH with an average entry price of $1,500. The current price is $1,700. The trader expects a rise to $2,000 but wants to protect themselves with a breakeven stop. They create an OCO sell order:

1. Upper limit — conditional market order with a trigger at $2,000 (take profit)
2. Lower limit — conditional market order with a trigger at $1,500 (stop loss)

Possible outcomes:

If a rise occurs (take profit): When the price reaches $2,000, the upper order triggers and the position is sold at market price. The stop loss at $1,500 is automatically canceled.

If a decline occurs (stop loss): When the price drops to $1,500, the stop loss triggers, and the position is sold at market price, protecting capital. The take profit order is canceled. The participant is prepared to both realize gains during an upward move and limit losses during a reversal.

How to Monitor and Manage OCO Orders

Traders can view their active OCO orders in the Open Orders section, and completed or canceled orders in the Order History section. This system allows full tracking of all placed OCO orders and their execution.

An OCO order is a powerful tool for traders seeking to automate risk management while preparing for various market scenarios. Understanding how it works and applying this feature correctly provides market participants with a significant advantage in capital protection and trading strategy optimization.