A fill-or-kill order (FOK) is a request by an investor that requires that they be executed immediately at best available current market price in Australian stock trading.
A FOK order in stocks trading is not guaranteed to execute unless the broker can fulfil the entire order right away. If the broker cannot fill any order quantity, the entire transaction fails and is cancelled. It essentially acts as all or nothing, depending on how long it takes to execute, or they will cancel the order immediately.
One of the primary benefits of using a FOK order is that the investor only pays for the total quantity they receive in return. In contrast, other orders may carry additional fees for partial executions. There are no partial fills allowed with a FOK. It would be best to weigh this benefit against higher commissions and other costs associated with exceptionally high-volume trades or those made at times when trading activity is low.
What are the disadvantages of using a FOK in Australian stock trading?
Higher commission costs
If the broker cannot fulfil any FOK order in one go, it will have to be broken down into smaller pieces. The commission fee is charged for each partial fill and the commission when trading with an Australian stockbroker.
Time required to process orders may result in poor fills
Market makers are sometimes slow to respond after receiving a FOK order because they engage in other activities simultaneously. It results in poor fills, leading to investors losing their patience and removing their limit orders if they do not receive proper executions.
Not guaranteed execution unless the entire order is filled right away
The main disadvantage of using a FOK is that no partial fills are allowed, meaning that unless the broker can immediately fulfil the entire order, they will not execute it. It is likely to lead to traders removing their limit orders if they do not receive proper executions.
The order is executed immediately
Since FOK orders are not guaranteed unless the broker fulfils the entire quantity right away, there is no flexibility or opportunity for market makers to find reasonable prices for pieces of the order. Investors may not receive an execution at a price they were hoping to obtain.
The order may expire if it is not filled in time
If traders do not submit their FOK orders early enough, they will miss out on potential opportunities as the stock price fluctuates during the day. The limit of a FOK order is also its expiry period, so if it has not been executed by this time, it will automatically expire and no longer be valid.
Advantages of using FOK in Australian stock trading
The main advantage of using a FOK is that no partial fills are allowed, meaning that unless the broker can immediately fulfil the entire order, they will not execute it. Every order placed with this type of limit is guaranteed to execute fully, providing it is possible. It ensures that traders can confidently enter high-volume orders without fear of them remaining active indefinitely.
No need for entering time in force (TIF) settings
FOK orders do not require any additional input from the trader to set the time in force (TIF). Instead, they automatically carry over until they are filled or cancelled by the investor or broker.
Easier to process
FOK orders are easy for market makers to process because they do not have to split them up into multiple parts depending on the current availability of securities. It is easier and faster for market makers to carry out these trades, making them popular with traders who regularly engage in high-volume transactions.
FOK may save money
The main benefit of using a FOK order is that you only pay for the total quantity you receive in return – there are no additional fees associated with partial executions. It would be best to weigh this against higher commissions and other costs associated with exceptionally high-volume trades or those made at times when trading activity is low.