Understanding fill or kill orders (FOK) in crypto

Trading within any financial market comes with its own set of risks. However, the cryptocurrency market is deemed particularly risky due to its highly volatile nature. Fortunately, there are specific order types that can help with risk management. They are present on most trading platforms in the crypto market. One of them is called the Fill or Kill (FOK) order. This guide will explain what a FOK order is, how it works, and how to use it.

Market orders vs. limit orders

Before discussing Fill or Kill orders, it's important to understand how orders are placed in the crypto market. There are two main types of orders — limit orders and market orders. Market orders are expected to execute immediately once submitted. For example, if a market participant wants to buy one Bitcoin (BTC) at the current market price. They would visit a trading platform and submit a market order for one BTC, which would be filled at the asset's current market value.

But where did this BTC come from? Assuming you used a centralized exchange, the order would have been matched through an order book. The order book consists of limit orders, which are orders that do not require immediate execution, as the seller has set a specific price to sell their asset at.

It's also worth noting that limit orders can be used by market participants who wish to buy a specific asset at a certain price. For example, if someone wants to buy one Bitcoin at $30,000, their order would only be complete once it reaches that price.

What do you need to know about market orders?

At the basic level, market orders are simple buy-and-sell orders. You instruct trading platforms to make a crypto transaction at the best available price. However, this might differ from the current price as it depends on the order book. As a result, your order may be executed at a slightly higher price than the one currently displayed.

What are the common order types?

The following list of orders includes some of the most common order types used within the crypto market.

• Stop-Limit Orders — This is a typical order used for limiting losses. It is often used as a risk management tool in most trading strategies. It allows market participants to set a stop loss or a limit price. Once the price drops to a stop loss, your order gets placed at the limit price.

• One-Cancels-the-Other Orders — Another very popular order is One-Cancels-the-Other. This tool lets you combine two conditional orders. After one of them is triggered, the other one gets canceled. It is a perfect order for when you are unsure how the price will go.

• Good 'til Canceled Orders — This type of order tells the exchange to keep your order open no matter what happens. That way, either it will get executed, or you will cancel it manually. Most platforms in the crypto industry use Good 'Till Canceled as a default.

• Immediate Or Cancel Orders — As the name suggests, you want this type of order executed immediately. If this is not possible, the exchange cancels it on the spot. It is helpful if you want to buy a certain amount of crypto at a specific price. This type of order does, however, partially fill orders when possible. For example, if a market participant wanted to buy ten BTC at $20,000, but the order book doesn't have a matching order. The closest it has is someone selling five BTC at that price. The order will get partially filled, and the trader will receive those five BTC. Meanwhile, the rest of the order is canceled.

• Fill Or Kill (FOK) Orders — Finally, we have the Fill or Kill order. This is an order that is either filled immediately or canceled. It is similar to an Immediate or Cancel order but has one big difference. It doesn't get partially filled. In the same scenario above, nothing would happen if you wanted ten BTC, but only five are available.

The meaning behind fill or kill orders

The Fill or Kill order is a type of order based on Time In Force which is essentially a parameter you can specify when you open a trade. It is used to dictate the conditions for its expiry. For this specific order, it requires it to be filled immediately or entirely or be canceled. They can be filled at a limit price or better. However, the exchange cannot partially fill the order.

This order is similar to Immediate or Cancel, as we have seen in the previous segment. It is also similar to All Or None orders (AON), another type often used within financial markets. The biggest difference between FOK and AON is that the FOK order wants to be filled immediately. On the other hand, AON wants to be filled in its entirety, but it doesn't specify when it must happen.

Advantages and risks surrounding FOK orders

FOK orders can be beneficial in certain situations when you trade cryptocurrency. To make this easier to understand, we have created a pros and cons list for Fill Or Kill order.

Pros:

• Quick execution that lets helps you take advantage of price volatility.
• You can avoid partial order fills as orders are filled or canceled entirely.
• Orders are filled at your desired price or not at all.
• With FOK orders, you can enforce risk management strategies.

Cons:

• Your order might not be executed if no order matches it.
• FOK orders are not flexible — you must decide on the price and quantity with no room for adjustments.
• You can only trade cryptocurrencies with high liquidity, otherwise your order most likely won't be matched.

Should you use fill or kill orders?

Fill or Kill orders are precise orders that allow you to fulfill your order immediately. They will not be partially filled if the exchange cannot match your order. For day traders and scalpers, this is an ideal order that lets them take advantage of small changes in crypto prices. However, it does come at a risk of not having your order executed, which could lead to missed opportunities.

It is also worth noting that FOK orders increase pressure on decision-making, meaning you must make choices quickly. This can be difficult for inexperienced traders who need to learn how to assess the market quickly. Of course, this can be stressful for experts as well.

FAQs

What does FOK stand for?

FOK stands for Fill Or Kill. It is a type of order that a crypto trader can make to have their order fulfilled immediately and entirely.

What is FOK trading?

FOK trading means that your order will be executed immediately and must be matched in its entirety. It does not allow the exchange to fill it partially. If there is no right match, the order gets canceled.

What are FOK and FAK?

A FOK order is placed at a limit price, which is automatically canceled if it doesn't get wholly filled. A FAK order, however, refers to an order placed at a limit price that is filled partially. With this type, only the unfilled portion gets canceled.

What GTC means?

GTC order stands for Good 'Til Canceled order. It refers to an order that should be left until it is filled or manually canceled. It is used as a default order on most crypto trading platforms.