Fill or kill order is an interesting concept which has emerged from order types like buy order and sell order. In the same buying and selling practice, there are several types of orders one can opt from in accordance with the preference of the trader. Such orders are market order, limit order, stop order, stop-limit order, bracket order and day order.
Moving to the fill or kill order, this article covers:
- What is a Fill Order?
- What is Fill or Kill Order?
- Use of Fill or Kill Order
- How Does a Fill or Kill Order Work?
- Differences and Similarities with Other Order Types
What is a Fill Order?
Fill order is the term which implies the execution or completion of the order. It is a usual act in all financial markets.
In order to get the order filled, there are some conditions that are needed to be met. These are:
- Having enough trading volume or traders to buy and sell
- Making sure the stocks being traded have not expired
- Trading when the market is operational or in the trading hours
These conditions are extremely important to be met since the order is more likely to get filled only when the market is operational in a full swing.
Nevertheless, not every order gets filled and that is why we will learn more on this topic ahead.
Let us take a look at what is fill or kill order?
What is Fill or Kill Order?
A fill or kill order implies that type of limit market order which needs the broker to execute or complete an order immediately and fully (not partially) or not at all (killing the order). In simple words, this type of order is to be executed fully and spontaneously at a particular price or else kill the order if not executed.
Use of Fill or Kill Order
A good use of fill or kill order apart from being a type that depends on individual preference is that it can be used to test a market. We will take a look at this with the help of an example. Let us assume two scenarios in the same market:
Scenario 1
In this scenario, let us assume that the May S&P futures are trading between 406.50 and 406.90. You put a buy signal at 406.50. Also, we are assuming that the trading volume is less. Now, following the buy signal, prices move up to 406.90. But you are hesitant to buy since you are concerned about the market falling back to the original price of 406.50.
In this case, you can place fill or kill order to go long at 406.45 which is quite below the current range of trades. Initially, you see that the price is 406.55 when you place the order. Then, gradually the price goes as follows… 406.50… 406.55….. 406.50...… 406.45. As soon as your bid appears, that is, 406.45, your trade is filled.
The above scenario shows that the market is weak since there are sellers willing to sell at such a low price. This way, it helped characterize a weak market.
Scenario 2
Now, let us assume another scenario in which the outcome is different. We will assume the same market. In this scenario also, let us take your bid to be fill or kill order at 406.45. Now, in the same way, you observe the price going as follows… 406.65..406.55.... 406.55... 406.60... 406.65... 406.65... 406.60... 406.65.... 406.60... 406.75..406.70... 406.65... 406.70... 406.75. In this scenario, the market came closer to your bid of 406.45 but never equalled it. Since it never hit the offered bid, the order is returned and is killed. This scenario revealed that the market is with good demand and that is why never hit a very low price. Here you should better get on board quickly.
Let us now go ahead and see how does a fill or kill order work?
How Does a Fill or Kill Order Work?
Fill or kill order works with a simple logic of either executing the order or killing it completely. Let us assume you, as a trader, wish to buy 100,000 shares of a stock at $20 per share and it has to be immediate.
Hence, it fulfils the three conditions:
- Buying a particular amount of shares of a stock,
- At a particular price,
- And, immediately
Then, you can make a request with your broker to put a fill or kill order for this trade. Now, the broker can only:
- Fill the order or
- Kill the order
In case your limit price and the market price are same, the order gets immediately filled. In fill or kill order, there is no partial fill and it is only complete filling of order. This means that the order either gets executed the way you wish or does not at all. And, in case it gets killed the order gets cancelled entirely and does not make it to the stock market at all.
This tool comes in handy during a one-time trading opportunity. This way you can function in accordance with your requirements with all the conditions in place.
Moving forward, we will now take a look at the differences and similarities of fill or kill order with other order types.
Differences and Similarities with Other Order Types
Above table makes it clear that there are some differences and some similarities between each of the order types mentioned.
|
Orders |
To be filled immediately |
Can be filled partially |
Can be used in addition to Day order or Good Till Cancelled if not filled immediately |
When there is not enough supply to meet the quantity requested then the order will be cancelled at the end of the trading day |
|
Immediate or cancel |
True |
True |
False |
False |
|
Fill or kill |
True |
False |
False |
False |
|
All or none |
True |
False |
True |
True |
Great! We learned the important topics around fill or kill order and now let us take a look at the conclusion.
Conclusion
In this article, we first covered the basics of fill or kill order along with the meaning of fill order. Then, we discussed what a fill or kill order means. Fill or kill order is used on the basis of your preference if you do not want to trade beyond a particular price. Also, fill or kill order is used for testing a market and its working includes the conditions for filling the order. The conditions are to buy a particular amount of shares at a particular price and immediately. Then we discussed how fill or kill order is similar as well as different from other order types briefly. Hope this article served your purpose to gain a thorough knowledge of fill or kill order.
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