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Question

Difficulty: MediumTypes of Orders and Order Execution Strategies

An investor is reviewing order execution qualifiers with a registered representative prior to placing large equity transactions. Which of the following statements correctly compare Fill-or-Kill (FOK) and Immediate-or-Cancel (IOC) orders?

  1. Both FOK and IOC orders mandate immediate execution upon routing to the trading venue.Answer
  2. An IOC order permits partial execution with the remaining balance canceled, whereas a FOK order requires the entire order quantity to be filled or canceled in full.Answer
  3. C
    If a FOK order cannot be executed immediately in full, the unexecuted shares remain active as a Day order until market close.
  4. D
    Both FOK and IOC order types allow the remaining unexecuted shares to be automatically converted into Good-'Til-Canceled (GTC) limit orders.

Answer

The correct statements are that both Fill-or-Kill (FOK) and Immediate-or-Cancel (IOC) orders mandate immediate execution upon reaching the trading venue, and that an IOC order permits partial fills while a FOK order requires complete execution or cancellation.
Both Fill-or-Kill (FOK) and Immediate-or-Cancel (IOC) orders demand an immediate execution attempt upon entry. The key distinction lies in partial fills: an IOC order permits partial execution and cancels the unexecuted remainder, while a FOK order must be executed in full immediately or canceled completely.

Step-by-Step Solution

1
Analyze the execution timing requirement common to both FOK and IOC orders.
Both order types mandate immediate execution upon market presentation; neither order is permitted to rest on the order book.
Timing qualifiers for both FOK and IOC require immediate execution attempts upon entry.
2
Distinguish between partial fill allowances for FOK and IOC orders.
IOC allows partial fills (canceling the unexecuted balance), while FOK requires an all-or-none immediate fill (canceling the entire order if not fully executable).
FOK combines immediate execution timing with an all-or-none quantity restriction.

Key Concept

Order Execution Qualifiers (FOK vs. IOC Mechanics)
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Topics

Types of Orders and Order Execution Strategies