The two types of orders you can use in stock trading are AON and FOK. These letters represent “all or none” and “fill or kill,” respectively.
Each order has its pros and cons, but both types should be used carefully because they only make sense under certain conditions.
Both of these order types are examples of “limit orders.” A limit order specifies a maximum price for which you are willing to sell a stock or the minimum price you are willing to buy it.
The best thing about limit orders is that they are guaranteed to execute as long as the market reaches your target price.
For example, if there are 100 shares of XYZ Corp available at $5 per share and you put to buy 50 shares with a limit price of $4.50 per share, then you will buy all 100 (assuming there was sufficient liquidity).
If someone else put in an order for 100 shares at $4.50, both orders would be executed; however, if only one person needed that stock, the order at $4.50 would no longer be valid.
Both AON and FOK orders attempt to solve the problem of partial fills by mitigating risk on your end or on someone else’s end (depending on which type you use). In theory, these orders are executed because you set a limit to buy them for no more than $4.50 per share.
The downside of this type of order is that you can never be sure of its execution price.
An unfilled limit order is cancelled and removed from the market maker’s system, so there’s always a chance that you could have executed your trade at a low price.
AON Orders: All or None
An AON (all or none) order guarantees that your transaction will be completed in its entirety if possible, but no portion of it will be done unless all shares can be bought or sold at once.
For example, let’s say I want to sell 200 shares of XYZ Corp, but I’m only willing to do it if I can get my target price of $11 per share.
If a buyer comes along and agrees to buy the entire lot at that price, then my order will be filled.
However, if they don’t need or want all 200 shares (or there aren’t enough buyers for them), my order is cancelled and deleted from the market maker’s system.
The main benefit to AON orders is security because you’re guaranteed not to get less than your desired transaction size when the market cooperates.
It also works well when others are chasing stock in hot markets because these transactions tend to attract a lot of interest and activity.
An example would be Apple Inc during one of its product launches.
FOK Orders: Fill or Kill
A FOK (fill or kill) order is used to get filled immediately, or else it’s cancelled and deleted from the market maker’s system.
This type of order is suitable when you want to raise your stock price, but only if you can do so immediately. Let’s say XYZ Corp shares are trading at $10 and I’m willing to pay up to $15 for 100 shares.
If my broker puts to buy 50 shares right now at $14 per share, then that transaction will be executed instantly without any problems because there are plenty of sellers offering that exact quantity at that price.
However, let’s say there aren’t enough sellers to fulfil my entire order at $14 per share. If that’s the case, then my broker will cancel his FOK order to buy 50 shares at $14 and pay a fee for an attempted transaction that didn’t happen.
To illustrate why this type of order can be beneficial, let’s say you want to buy 100 shares of XYZ Corp, but there are only 30 available, around $15 per share.
Your typical market order would get filled for just 30 shares, with the remaining 70 staying on the market maker’s system, waiting for others to come along and sell them what they want/need.
A FOK order guarantees that all 100 shares will be bought immediately if possible and cancels any unfilled portion of the transaction–no exceptions.
Link here for more information on US stocks.