What Is Fill or Kill Order?

About Fill or Kill (FOK) order

A Fill or Kill order can be placed with a financial broker when buying a security. This is commonly used in the stock market, commodities market and Forex market.

With this type of order, the buyer specifies that the entire amount of the order must be filled or the broker is to disregard the order entirely. The buyer does not want any partial order fills for this particular order. In many cases, if you do not specify the type of order, and there is not enough of a particular security to fill the order completely, the broker will make a partial fill at that price. This might provide you with only a fraction of the amount of securities that you want to purchase.

A Fill or Kill order differs from immediate or cancel orders in that immediate or cancel orders allow partial executions. The Fill or Kill order in stock trading is an exchange that will never trade partially. It can be very useful when someone wants to buy or sell immediately, but the standard market order is too dangerous (because of possible price fluctuation), as a limit FOK trade will only act if it can immediately fill at the set price or better, which means that it will cancel if it cannot buy or sell all shares at a price that is satisfactory to the investor who set the order.


Application

This type of order is commonly used in transactions that involve purchasing large numbers of securities. For example, if you wanted to buy 20,000 shares of a particular stock, at a particular price, you might want to use a fill or kill order so that you do not end up with only 5000 shares of the stock at that price. Not getting a full order could affect your investment strategy in a way that you would dissatisfy you.

Restrictions

Not all brokers and markets accept Fill or Kill orders and many brokers have restrictions in placing these orders like 1) the order must be equal (or exceed) a certain number of stocks, 2) orders can be only placed at market hours, 3) these orders are not allowed at/near market closing, 4) the orders cannot be stop or short orders, etc. Often FOK is considered as a restricted order than useful trading tool.

For example, Fidelity posts the following restrictions for the Fill or Kill orders:
  • are for 101 shares or more
  • are only placed during market hours
  • are good only for the current day
  • are not allowed for use with stop loss, stop limit, or sell short orders
Examples

Suppose that a stock has been trading at around $5 for the past few hours. An investor looking to purchase 1,000 shares could set a buy limit order with the FOK component, and as soon as the order is enacted, either 1,000 shares will be bought at $5 or less, or none will be bought at all. If enough sellers are available, and the value is within the $5 limit at the time of the order, it will fill completely.

A sell order works the same way. Suppose that an investor is looking to unload 1,000 shares of a stock with a limit price of $10. As soon as the order is placed, it will fill by either unloading all 1,000 shares at $10 or better at once, or it will cancel.



Sources and Additional Information:
http://www.suite101.com/content/what-is-a-fill-or-kill-order-in-stock-trading-a301534



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