One Cancels the Other (OCO) – this order is used in forex when giving a limit order and a stop-loss order at one fell swoop. If any order is carried out the other is automatically cancelled, allowing the trader to make business without keeping an eye on the market. If the market falls, the stop-loss order will be carried out, yet if the market climbs to the level of the limit order, the currency will be sold, thus generating profit.
Here is a simple example for a OCO Transaction: Buy: 1 standard lot EUR/USD @ 1.3228 = $132,280 Pip Value: 1 pip = $10 Stop-Loss: 1.3203 Limit: 1.3328
This is an order to buy US dollars at 1.3328 and to sell them if they fall to 1.3203 (resulting in a loss of 25 pips or $250) or to sell them if they rise to 1.3328 (resulting in a profit of 100 pips or $1,000).
Here's another example from the forex market:
The up to date bid/ask price for US dollars and Canadian dollars is USD/CDN 1.2152/57, signifying you can buy $1 US for 1.2152 CDN or sell 1.2157 CDN for $1 US. If you think that the US dollar (USD) is held in low esteem against the Canadian dollar (CDN), you would buy USD (at the same time selling CDN) and wait for the US dollar to mount.
This is the transaction: Buy USD: 1 standard lot USD/CDN @ 1.2157 = $121,570 CDN Pip Value: 1 pip = $10 Stop-Loss: 1.2147 Margin: $1,000 (1%)
You are buying US$100,000 and selling CDN$121,570. The stop loss order which you previously gave would be carried out only if the dollar falls below 1.2147, in which case you will lose $100. However, USD/CDN rises to 1.2192/87. You can now sell $1 US for 1.2192 CDN or sell 1.2187 CDN for $1 US. Since you have entered the deal by buying US dollars (buying long), you must now sell US dollars and buy back CDN dollars to realize your yield.
You sell US$100,000 at the present USD/CDN rate of 1.2192, and obtain 121,920 CDN for which you initially paid CDN$121,570. Your profits are $350 Canadian dollars or US$287.19 (350 divided by the existing conversion rate of 1.2187).
And that is about all there is to it! A nice forex profit.
Andrew Keynes is a long time FOREX trader. A husband and father of two, Keynes has proven himself and built his reputation as an expert to the Foreign Exchange market over many years.
He has successfully served as financial advisor to several large hedge funds and groups and is nowadays busy pushing his latest effort,
www.forexblogs.net,a place on the web where economists from all over the globe congregate and share their trading and investing experiences with each other.
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