Definition
“Fill Or Kill” (FOK) is a type of time-in-force instruction used in securities trading that mandates a broker to execute a transaction immediately and completely or not at all. This order is usually used by day traders who are seeking to buy or sell a certain quantity of a specific security. If the complete order cannot be fulfilled, it is cancelled, leaving no partial transactions.
Key Takeaways
- Fill or Kill (FOK) is a type of time-in-force order used in securities trading that requires a broker to execute a transaction immediately and completely, or not execute it at all.
- This order is often used in day trading and allows a trader to avoid partial fills, which can be disadvantageous in fast-moving markets.
- However, the main risk with Fill or Kill orders is that the order might not be executed, especially in illiquid markets or for larger orders, since it requires the whole quantity to be filled at once.
Importance
The finance term “Fill Or Kill” (FOK) is important because it’s a type of order that requires immediate execution in its entirety; otherwise, the entire order is cancelled.
FOK orders are a critical tool for traders and investors who want to buy or sell a certain amount of security at a specific price point.
These orders often come into play during breakout or volume momentum periods, or when trading illiquid markets where large orders could be hard to fill.
Understanding and utilizing FOK effectively can allow investors to have a tighter control over their trade execution, leading to potential for more profit and less loss.
Explanation
Fill Or Kill (FOK) is a type of time-in-force designation used in securities trading that instructs a brokerage to execute a transaction immediately and in full, or not at all. This type of order is often used by day traders who are seeking to buy or sell a substantial quantity of a particular security.
It represents an explicit instruction that their order must be executed in its entirety to avoid partial fills that could result in carrying unwanted inventory or the need to sell incrementally. FOK orders are used to ensure liquidity and timely execution, making it beneficial for traders dealing with large quantities of stock or those who trade in a fast-paced, volatile market where prices can change rapidly.
For example, if you wanted to buy 1,000 shares of XYZ but only 500 shares were available at your target price, a FOK order would cancel the entire transaction. This prevents situations where you might end up purchasing a fraction of what you intended at potentially unfavourable prices.
Examples of Fill Or Kill
“Fill or Kill” (FOK) is a type of order given with regards to the buying or selling of a stock. When a FOK order is given, the broker is directed to either fully execute the order immediately or to cancel it if it cannot be executed immediately. Here are three real-world examples:
Day Trading: An investor who is engaging in day trading, which involves buying and selling stocks within the same day, may use a FOK order. For example, if an investor wants to purchase 100 shares of company A at $20 per share, they may give a FOK order. If all 100 shares cannot be purchased immediately at that price, the order will be cancelled.
Limit Orders: A FOK order may often be used in conjunction with a limit order, which specifies the maximum price a buyer is willing to pay or the minimum price a seller is willing to accept. For instance, an investor may place a FOK order along with a limit order to buy 50 shares of a company at $
If the shares can’t be bought at that price immediately, the order will get killed.
Large volume purchases: FOK orders are often used by institutional investors who need to buy or sell large volumes of shares, and want to do so at a specific price. For example, a pension fund might want to buy 1,000,000 shares of a company at a specific price. They would use a FOK order to ensure that they can get all the shares they need at their desired price, or else not make the purchase at all.
FAQs About Fill Or Kill
What is the meaning of Fill Or Kill (FOK) in finance?
Fill Or Kill (FOK) is a type of time-in-force designation used in securities trading that instructs a brokerage to execute a transaction immediately and completely or not at all. This type of order is most often used by active traders and is not commonly used by average investors.
What is the significance of Fill Or Kill orders?
FOK orders are used when an investor wants to make sure their entire order gets filled. This is particularly useful when trading in an illiquid market. If the entire order cannot be filled, the order is cancelled avoiding partial fills.
What is the difference between Fill Or Kill (FOK) and Immediate Or Cancel (IOC) order?
The main difference between FOK and IOC orders is that an FOK order must be filled entirely or not at all, while an IOC order fills as much of the order as possible and cancels the remaining shares.
What are the potential downsides to Fill Or Kill orders?
One downside of FOK orders is that there is no guarantee the order will be executed, because it is only filled if the entire quantity of shares can be purchased. This can be particularly problematic in illiquid or highly volatile markets.
Are Fill Or Kill Orders typically used by day traders?
Yes, FOK orders are typically used by day traders and other types of active traders who want to move in and out of securities quickly. They use FOK to ensure they are getting the entire position they want and to avoid partial fills.
Related Entrepreneurship Terms
- Immediate Or Cancel (IOC): Another type of order directive used in trading, requiring all or part of the order to be filled immediately; any unfilled parts of the order are cancelled.
- Day Order: A type of order that expires if not fulfilled on the day it was made.
- Limit Order: An order to buy or sell a security at a specific price or better. Unlike a market order, a limit order won’t be filled if the price is not met.
- Stop Order: A type of order to buy or sell a security when its price surpasses a specific point, often used to limit an investor’s loss on a security’s position.
- Good Till Cancelled (GTC): A type of order that remains in effect until the investor decides to cancel it or the order is filled.
Sources for More Information
- Investopedia : A comprehensive source of financial information and education. Their content ranges from articles and dictionaries to tutorials and videos covering a myriad of financial topics.
- NASDAQ : It offers real-time quotes, market news, analysis, and announcements. They have a comprehensive glossary of all trading terms including ‘Fill Or Kill’.
- The Motley Fool : It provides a wide range of financial and investment advice. They offer articles on different financial concepts and strategies, including specific trade order types.
- Charles Schwab : On this platform, users can get advice on investments including detailed descriptions and usages of various order types like ‘Fill Or Kill’.
