Finance

Fill or Kill Order

Fill or Kill Order

Fill or kill (FOK) order is a time-in-force conditional type of order used when trading securities that instructs a brokerage to execute a transaction either immediately and completely or not at all. Most often these type of orders are used by active traders and is usually for a large quantity of stock. It is an order to purchase or sell stocks that must be fulfilled instantly in its entirety; else, the complete order would be canceled. (i.e., no partial execution of the order is allowed).

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What is Fill or Kill Order?

The purpose of a Fill or Kill (FOK) order is to make sure that an entire position is executed at prices that are prevailing in a timely manner. Without this order, it might take a prolonged period of time to complete a large order. Since such orders are typically placed for large quantities, prolonged execution of the order has the potential to cause significant changes to a stock’s price which results in market disruption. A Fill or Kill (FOK), in certain exchanges, should be executed, within several moments of being revealed to the trading market. Whereas in other exchanges, it is executed by filling the order with the number of shares that the first bid or offer makes available at that time. Any other unfulfilled share balance, then, will be canceled. In this context, the Fill or Kill order is a way for a buyer or seller to fill in what is possible and cancel the rest.

How Does a Fill or Kill Order Work?

Assume an investor wants to purchase one lakh shares of Stock ABC at Rs.250 per share. If the investor wants to buy one lakh shares fairly immediately, and no fewer, at Rs.250 (or better), a FOK order should be placed. Assume the order has been placed. If a broker has more than lakh shares in his inventory and would only like to sell 70,000 shares at the Rs.250 price, the order would be killed. If the broker is willing to sell one lakh shares but only a price of Rs.250.01, the order would be killed.

On the other hand, if the broker is willing to sell the full one lakh shares at Rs.250, the order would be filled instantly. Also, if the broker is willing to sell the full one lakh shares at a better price, say Rs.249, the order would also be filled.

Trading with a Fill or Kill Order:

The fill or kill order is an advanced trading tool that comes in handy when you spot a one-time trading opportunity. It is an extreme way of tackling the market when it acknowledges nothing but the complete enforcement of the requirements.

Fill or Kill orders should not be confused with other orders, such as:

  • Immediate or cancel (IOC): This order concerns timing. The broker cancels the trade if it is not carried out promptly upon arrival at the exchange.
  • All or nothing (AON): This order concerns 100% fulfillment. It requires an entire execution or no execution at all.

In reality, however, the fill-or-kill type of trade does not occur very frequently. Other alternative methods of instructing brokers on the timeline in which the transaction is to be carried out include immediate or cancellation (IOC) which means the completion of all or part of the order immediately, then cancel any part that cannot be filled, and good ‘til canceled (GTC), which keeps an order open until it is able to be filled at a specified price.

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Bottom Line:

A fill or kill order implies that the type of limit market order needs to be executed or completed immediately and fully (not partially) or not at all (killing the order). Simply put, this form of the order must be executed completely and immediately at a specific price, or else the order must be canceled if it is not executed.

Author: Mahek Medh

About the Author: Currently, I am in my second-year bachelor’s program and over the period of time I have realized that I enjoy learning about numbers and money, and I find topics of Finance to very interesting thus this is the domain and space where I wish to etch my long term career.

Related:

Buying on Margin

Good Till Cancelled (GTC) order

Market Orders vs Limit Orders

 

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