Fill or kill orders are a combination of AON orders and IOC orders
A little overview on fill and kill orders
In electronic trading platforms, traders place orders in the stock exchange with the help of a broker. Fill or kill order has a time-in-force specification that identifies the order’s length before expiration and cancellation.
Now, fill or kill, also known as FOK, is a limit market order that instructs the broker if the execution is immediate and whole or nothing at all. Usually, these types of orders put pressure and burden on traders and the market. As a result, orders are always on the kill side.
An example scenario with a fill and kill order
Let’s say Riza wants to buy a total of 10,000 stocks where one stock amounts to $5 per share as soon as possible. Riza is firm about her conditions before proceeding. First, she wants to buy precisely 10,000 stocks — no more, no less. She is also tight on her decision to purchase these 10,000 at $5 — no more, no less. Also, she wants it to happen right now and not later. She then proceeds to make a fill or kill request to her broker. However, since Riza’s order requirements are particular, there is absolute pressure for the broker.
Now, the broker has two choices. He can either proceed with the transaction (fill the order) or say no and not fulfill the order (kill).
Why is a fill or kill order important?
Fill or kill orders ensure that if the execution of the order in full and not partial. These orders also provide that the execution will go on as planned, with no discrepancies or slight differences. If one condition does not go the way the trader how he wants it to be, the broker can always terminate the order request instead of not fulfilling all of the conditions. The order gets canceled, and it will not go to the market.
More on fill or kill
Fill or kill orders came to life thanks to technology and the advancement of the modern world. It may be an aggressive and straightforward approach since it will not take anything outside of the conditions set. However, it is very convenient, especially for traders who want to concretize a trading opportunity.
The confusion between fill or kill order and other types of orders
People often mistake fill or kill orders as other types of orders such as “immediate or cancel order” and “all or nothing order,” and vice versa. But all these are different from each other.
An immediate or cancel order, also known as an IOC order, is an order that focuses on the timing. When the implementation does not happen as soon as the exchange comes, the broker will have to cancel the order.
On the other hand, the all-or-nothing order, also known as IOC order, focuses on fulfillment alone. It can only be a full execution or nothing at all.
If we think about it, we can conclude that fill or kill is somehow a combination of IOC and AON. In fill or kill, the broker needs to meet both IOC and AON’s conditions to proceed with the transaction.