What Is An One-Cancels-The-Other (OCO) Order In Crypto

Key Takeaways

• OCO orders combine stop-loss and take-profit opportunities and automate trades to balance risk and reward without constant market monitoring.
• Effective in volatile crypto markets, OCO orders protect against significant losses while securing gains.
• OCO orders can be used in both spot and margin trading, making such orders suitable for all traders.
• OCO orders save time helping traders stick to strategies and avoiding impulsive buying decisions.

An OCO (One-Cancels-the-Other) order is a pair of conditional orders where the execution of one trade cancels another. The aim of this order option is to serve as a risk management tool to set specific entry and exit points. 

This article will look to try and give a clear picture as to what OCO orders are in cryptocurrency trading, explaining the functionality, benefits, and how they help traders manage a volatile nature associated within the crypto markets.

One-Cancels-the-Other (OCO) Order In Crypto Trading, Explained

An OCO order combines two conditional orders:

• A stop order and a limit order: If one order is executed, the other is automatically canceled. This strategy is used for automating buy and sell actions based on specific price triggers. For instance, a trader can set an OCO order to buy a cryptocurrency if the price of a crypto rises above a certain price, known as  a breakout, or to sell it if the price of a crypto falls below a predetermined level, known as a stop-loss. 
• Dual functionality: The mechanism of this combination allows traders to set clear entry and exit points without needing to monitor the market constantly. By leveraging OCO orders, traders can effectively manage their positions, ensuring they capitalize on favorable price movements while protecting themselves from significant losses in volatile crypto markets.

Common Crypto OCO Combinations

Here are some common crypto OCO combinations:

Stop-Loss + Take-Profit

The Stop-Loss and Take-Profit combination is one of the most common OCO strategies in crypto trading. Where a stop-loss order is set to sell a cryptocurrency if its price drops to a certain level, protecting against further losses should the price of a crypto continue to fall. 

Simultaneously, a take-profit order is placed to sell the cryptocurrency once that crypto reaches a desired profit level in the future. The following dual approach allows the trader to lock in profits while also limiting potential losses, effectively managing the risk and reward balance in volatile markets.

Trailing Stop-Loss + Take-Profit

A Trailing Stop-Loss and Take-Profit combination provides a way to manage trades. The trailing stop-loss order adjusts itself as the market price moves in favor of the trade, locking in profits while limiting losses. 

The take-profit order remains fixed at a specific level to sell the cryptocurrency when the desired profit is achieved. This offering helps traders maximize profits in trending markets, over extended moves while keeping track of risk.

Limit Order (Buy/Sell) + Stop-Limit Order (Buy/Sell)

Combining a Limit Order with a Stop-Limit Order allows traders to execute trades with precision. A limit order is set to buy or sell a cryptocurrency at a specific price or better. 

A stop-limit order is activated once a specified stop price is reached, converting into a limit order. This combination helps traders control entry and exit points more effectively, ensuring they only trade at acceptable price levels while also protecting against sudden market swings.

Break-Even Stop-Loss + Take-Profit

The Break-Even Stop-Loss and Take-Profit combination aims to protect initially and capture profits more clinically.

A break-even stop-loss order is set at the entry price, ensuring that if the market reverses, the trader exits without a loss. Simultaneously, a take-profit order is placed at a higher price to sell the cryptocurrency for a profit. 

How Do OCO Orders Work In Crypto Exchanges? (Step-By-Step)

OCO orders are super helpful when trading crypto, because they allow traders to manage risk and automate trading strategies. Here’s a step-by-step guide on how OCO orders work in crypto exchanges:

Step 1: Selecting The Crypto Pair

The first step is to choose the crypto pair you want to trade. This involves selecting the base and quote currency, such as BTC/USDT or ETH/USD. The base currency is the one you are buying or selling, while the quote currency is the one you are using to make the purchase or sale.

Step 2: Creating The OCO Order

Most crypto exchanges provide a dedicated section for creating OCO orders. Here, you will define two key parameters:

• Stop-loss price: This is the price at which you want to sell the cryptocurrency to limit potential losses. For example, if you own Bitcoin and the current price is 60,000 USD, you might set a stop-loss at 55,000 USD.
• Take-profit price: This is the price at which you want to sell the cryptocurrency to secure gains. In the same scenario, you might set a take-profit at 65,000 USD.

Step 3: Order Activation

Once the OCO order is created, it becomes active and starts monitoring the market. The exchange’s system will continuously check the prices to determine if either the stop-loss or take-profit conditions are met.

Step 4: Trigger And Cancellation

When the market price hits either the stop-loss or take-profit level, the corresponding order is executed.

Why Use OCO Orders For Cryptocurrency? Key Advantages

Some advantages that benefit the trader when adopting an OCO strategy include:

• 24/7 market volatility: Cryptocurrency markets operate 24/7, making them highly volatile. OCO orders automate risk management and set predefined entry and exit points so that a trader is in the market whilst not actively monitoring the market.
• Emotional discipline: OCO orders remove impulsive decision-making and enforce a predefined trading strategy. The likelihood of making emotionally driven trades reduces substantially and helps traders stick to an original plan, improving trading consistency.
• Time efficiency: With OCO orders, there is no need to constantly monitor price charts. Once the order is set, the order will automatically execute based on the predefined conditions. This “set it and forget it” approach saves time and allows traders to focus on other activities.
• Advanced strategies: OCO orders can be combined with other trading tools such as leverage and technical indicators. This allows traders to implement more sophisticated strategies, maximizing potential returns and managing risk more effectively.
• Suitable for all traders: OCO orders are beneficial for both beginners and experienced traders. Beginners can use them to mitigate risk and learn disciplined trading habits, while professionals can refine their entry and exit points to optimize trading performance.

OCO Orders In Crypto: Real-World Examples

Scenario 1: Buying Bitcoin (BTC)

Imagine a trader wishes to buy Bitcoin (BTC) currently priced at 60,000 USD. 

The trader will set up an OCO order with a stop-loss and a take-profit to manage your risk and potential profit. 

The trader will then place a stop-loss order at 55,000 USD to limit losses if the price drops, and a take-profit order at 65,000 USD to secure gains if the price rises. If Bitcoin’s price falls to 55,000 USD, the stop-loss triggers, and the BTC is sold to prevent further losses. Conversely, if the price hits 65,000 USD, the take-profit order executes, selling your BTC to lock in profits.

Scenario 2: “Shorting” Ethereum (ETH)

Suppose one is shorting Ethereum (ETH) at a price of 3,000 USD, expecting the price to drop. =

The trader set an OCO order to manage the trade.

The trader laters places a stop-loss order at 3,100 USD to minimize losses if the price moves against the trader by moving upwards, and a take-profit order at 2,800 USD to secure profits if the price falls. 

If ETH’s price rises to 3,100 USD, the stop-loss triggers, closing the position to prevent further losses. Alternatively, if the price drops to 2,800 USD, the take-profit order executes, allowing the trader to exit the short position with a profit.

Things To Consider Before Using OCO Orders In Crypto

• Exchange support: Not all cryptocurrency exchanges offer OCO orders. Ensure that you choose a reliable platform that provides OCO functionality to fully utilize this risk management tool.
• Slippage risk: In fast-moving markets, slippage can occur, causing your orders to fill at different prices than expected. Consider this and how it may impact the effectiveness of stop-loss and take-profit levels.
• Fees: Each trade, whether filled or canceled, may incur fees. It’s important to factor in these costs when setting up OCO orders to ensure that the trading strategy remains profitable.

OCO Vs. Other Crypto Order Types

• Stop-limit orders: Stop-limit orders are single-action orders that only execute a buy or sell when the price reaches the stop price, turning into a limit order. Unlike OCO orders, they do not automatically cancel another order upon execution.
• Trailing stop-loss orders: Trailing stop-loss orders adjust the stop price as the market price moves in the traders favor, locking in profits while limiting losses. Unlike OCO orders, trailing stop-loss orders do not include a take-profit component. 

OCO Vs. Stop-Limit Orders Vs. Trailing Stop-Loss Orders: Key Differences

Conclusion

OCO orders are a powerful tool for crypto traders looking to manage risk and automate trading strategies. When combining stop-loss and take-profit orders, OCO orders allow traders to set clear entry and exit points, ensuring traders capitalize on favorable market movements while protecting against significant losses. This dual functionality is particularly valuable in the volatile cryptocurrency market, where prices can fluctuate rapidly. 

As with any trading tool, it’s important to consider exchange support, potential slippage, and associated fees to fully leverage the benefits of OCO orders in your trading activities.

FAQs

About the Author

Andrew Kamsky

Andrew Kamsky is a writer and chart analyst, holding a degree in Economics and an ACCA certification. Andrew’s professional background spans roles at a Big Four accountancy firm, a fintech bank, and a chart analyst position at a listed bank focusing on foreign currency hedging. Beyond his financial career, Andrew is passionate about music, glass neon lights and travel.

See more

[email protected] LinkedIn Twitter Youtube