A fill-or-kill (FOK) is a conditional order that requires the trade to be completed instantly and in its entirety at a specified price. They are slightly different from market and limit orders. If any of the requirements are not met, the transaction must be canceled (killed) immediately. Investors and traders typically use a fill-or-kill order to acquire or sell large volumes of shares at a predetermined price and time. As it makes sure they get the price they want and receive the order filled instead of partial fill. This type of order is extensively used in block trades.
Purpose of Fill or Kill
A fill-or-kill (FOK) order is used to guarantee that a full position is completed at current prices and in a timely manner. A big order may take a long time to fulfill. Especially if it does not have a fill or kill indication. These orders generally represent a large trading volume. Thus, the order’s extended execution has the potential to create major fluctuations in a stock’s price. Therefore it could disrupt the price at which the security is trading.
Types of fill-or-kill orders
In actuality, trades like fill-or-kill don’t happen quite often. Other techniques to tell a brokerage about the time range in which a deal should be performed include:
“All or none” (AON) – A sort of order equivalent to a fill-or-kill which must be fulfilled, or the order is terminated.
“Immediate or cancel” (IOC) – An order which must be completed right away, or the transaction will be canceled.
“Good till canceled” (GTC) – This option keeps the sale active until it is fully filled at a given price.
Fill or kill orders should be fulfilled as soon as they are displayed in the trading market. The market or limit order fill-or-kill is considered similar to an “all or none” order in this context. With the difference that it is promptly canceled if it is not entirely filled.
On other exchanges, a fill-or-kill is performed by filling the order with the number of shares made available by the initial bid or offer. Then, any unfulfilled share balance would be canceled. The order in this context is a means for a buyer or seller to fill what is possible. Canceling the remainder.
In practice, though, the fill-or-kill sort of deal is uncommon. Other ways to instruct a brokerage on the time frame in which a transaction should be conducted involve “immediate or cancel” (IOC). That means to completely fill or to fill a portion of the order instantaneously, then cancel any part which cannot be filled. “Good till canceled” (GTC), which means to keep an order open until it can be filled at a particular price.
Example of fill-or-kill order
Assume an investment banker intends to acquire 150,000 shares of Company XYZ stock at a price of no more than $70 a share. To meet their need, the banker might issue a fill-or-kill order.
When an order is placed, it is attempted to be completed as soon as possible. If the fill-or-kill order could not buy the right amount of shares, or the share price rose over $70/share, or the purchase could not be completed quickly, the order would automatically be canceled.
From the seller’s perspective, the same may be said. For instance, if an investor decides to sell 150,000 shares for $70 or less per share. It can also execute a fill-or-kill order. If the share selling price falls below $70, or if the order cannot be met, the transaction will be immediately canceled. If it is an illiquid stock, the order might not be filled, due to the larger bid-ask spread.
Image source: media