A Fill or Kill (FOK) order is a specific type of order used in trading that must be executed immediately in its entirety at a specified price or better. If the order cannot be filled in full, it is immediately cancelled. This ensures that traders either get the full quantity they want at their desired price or nothing at all. FOK orders are typically used by institutional or high-frequency traders to execute large trades quickly and efficiently without partial fills.

How Fill or Kill Orders Work

A FOK order gives instructions to the broker or trading system to execute the trade instantly. If the full quantity of the order cannot be filled at the specified price or better, the order is cancelled without any partial execution.

Key Characteristics

• Immediate Execution: The order is executed as soon as it reaches the market.
• All-or-Nothing: Partial fills are not allowed.
• Short Lifespan: If the conditions are not met immediately, the order is cancelled.

For example, a trader places a FOK order to buy 1,000 shares of a stock at £100 per share. If the broker cannot execute all 1,000 shares at £100 or better, the entire order is cancelled.

When to Use a Fill or Kill Order

1. Large Trades: FOK orders are ideal for executing large orders in illiquid markets where partial fills could disrupt trading strategies.
2. Precise Execution: Traders who need the exact quantity of an asset at a specific price use FOK to avoid partial executions.
3. Time-Sensitive Trades: For trades where timing is critical, such as taking advantage of market conditions or arbitrage opportunities, FOK orders ensure fast execution.
4. Avoiding Market Impact: Traders who want to minimise market impact prefer FOK orders as they avoid multiple smaller trades that could affect the price.

Advantages of Fill or Kill Orders

1. Guaranteed Execution or Cancellation: Ensures that the trader either gets the full order executed or avoids unwanted partial fills.
2. Speed: FOK orders are executed almost instantly, making them suitable for time-sensitive trades.
3. Simplifies Execution: Reduces the complexity of managing partially filled orders.
4. Effective in Illiquid Markets: Helps traders avoid dealing with thinly traded markets where partial fills are common.

Disadvantages of Fill or Kill Orders

1. Higher Risk of Cancellation: If market conditions cannot satisfy the order immediately, it will be cancelled without execution.
2. Limited Flexibility: The all-or-nothing nature of FOK orders can make them unsuitable for smaller trades or volatile markets.
3. Not Ideal for All Traders: Retail traders may find FOK orders unnecessary or impractical for their typical trade sizes.

Fill or Kill vs. Other Order Types

• Immediate or Cancel (IOC): IOC orders allow partial fills, whereas FOK requires full execution.
• Good-Till-Cancelled (GTC): GTC orders remain active until the trader cancels them, unlike FOK orders that are cancelled if not immediately executed.
• Market Orders: Market orders execute at the best available price without guaranteeing the exact price or quantity, whereas FOK ensures price and quantity.

Example of a Fill or Kill Order

A trader wants to purchase 5,000 shares of Stock XYZ at £50 per share. They place a FOK order with these specifications:

• If all 5,000 shares are available at £50 or lower, the order is executed immediately.
• If only 4,000 shares are available, the order is cancelled entirely without execution.

This ensures that the trader avoids receiving a partial fill that could disrupt their strategy.

FAQs

What is a Fill or Kill (FOK) order?
A FOK order is a trading instruction that requires the full order to be executed immediately at a specific price or better; otherwise, it is cancelled.

How does FOK differ from IOC orders?
FOK orders require full execution of the order, while IOC orders allow partial execution with the remaining unfilled portion cancelled.

Why use a FOK order?
FOK orders are used when traders need the exact quantity of an asset at a specific price without partial fills.

Where are FOK orders commonly used?
FOK orders are commonly used in large trades, illiquid markets, and high-frequency trading.

Can retail traders use FOK orders?
Yes, but FOK orders are more suitable for institutional traders or those dealing with large quantities.

What happens if a FOK order cannot be executed immediately?
If the conditions of the FOK order are not met, it is cancelled immediately without any execution.

Are FOK orders suitable for volatile markets?
FOK orders may not be ideal for volatile markets, as price fluctuations can make it difficult to execute the full order immediately.

How is the price determined in a FOK order?
The trader specifies the desired price or better when placing the FOK order.

What are the risks of using FOK orders?
The main risk is that the order might be cancelled entirely if the market cannot meet the specified conditions.

Can FOK orders be used for selling assets?
Yes, FOK orders can be used for both buying and selling, ensuring immediate full execution or cancellation.

A Fill or Kill (FOK) order is a powerful tool for traders who need immediate and complete execution of their trades. While it is primarily used by institutional and high-frequency traders, understanding how and when to use FOK orders can benefit any trader seeking precision and efficiency in their trading strategies.