A FOK order, or Fill-or-Kill order, is a type of stock trading order used by investors when they need to have an order executed wholly and immediately. The purpose of this order is to buy or sell a security at the best possible price in one single transaction with no partial fill allowed. This approach means that the entire quantity of securities must be bought or sold in one go for the trade to be filled.
The term ‘Fill or Kill’ implies that if the market cannot fulfil the order entirely, it is immediately cancelled by the exchange. It is also known as an all-or-none (AON) order because it requires all assets listed to be traded at once.
FOK orders benefit investors who want to ensure that a specific trade is executed quickly and without delays. Using this type of order, they can guarantee that market will fill the entire order in one go at the best price. This helps them maximise their profits and trading costs by avoiding partial fills, which would incur additional fees and commissions.
However, while FOK orders may help traders secure better prices and faster execution times, they also have certain drawbacks. Since these orders require immediate execution, there is no time for price negotiation or bargaining with potential buyers or sellers. As such, traders could end up paying more than they should if they refrain from using a market order.
Furthermore, since FOK orders must be filled in full and at once, they will likely face low liquidity, which means that the order may not be able to get executed as there may need to be more buyers or sellers available on the market at any given time. This situation could result in a failed trade which would have been successful if it had been placed using a different type of order.
What are other types of stock orders used by UK traders?
UK traders typically use several other stock orders in addition to FOK orders, including limit orders, market orders, stop-limit orders, and trailing stops.
A limit order
A limit order allows the trader to specify a specific price for their order to be filled. If the stock’s current market price is lower than that specified in the limit order, the trade will be executed at the requested price or better. On the other hand, if the stock’s current market price is higher than that specified in the limit order, no trade will be made, and the order will remain open until it is cancelled by the trader or filled later.
A market order
A market order allows traders to purchase or sell a stock at its current market price. This type of order is used when the trader wants to ensure an immediate execution of their trade, regardless of the stock’s current market price.
A stop-limit order
A stop-limit order combines elements of both limit orders and stops orders. It allows traders to specify two prices: the stop price and the limit price. When the stock reaches or surpasses the stop price, a limit order is triggered that will be filled at or better than the specified limit price.
Trailing stops are designed to let investors lock in profits while still allowing them to remain in a position if it continues moving in a good direction. In this case, the buy/sell order will move with the stocks as their price increases or decreases, always maintaining a specific distance from its current market price.
What are the risks of trading a FOK order?
The risk of trading a FOK order is that it must be filled, so if there isn’t enough liquidity in the market at the time of trading, it could fail, which would result in a missed opportunity to buy or sell at the desired price and incur additional fees from an incomplete fill.
FOK orders can be handy tools for investors who need immediate and complete execution of their trades but should also be used with caution due to their inherent risks. By taking into account both the advantages and disadvantages of this order type before placing the trade, traders can increase their chances of success and enjoy more profitable and successful investments in the long run.