Fill or Kill (FOK)

What is Fill or Kill (FOK)?

Fill or Kill (FOK) is a conditional type of order used in securities trading. This instructs a broker to complete a transaction immediately or to cancel it. This type of order is also known as time-in-force order.

Active traders use this order, especially when they want to purchase a large number of stocks. The order is expected to be filled completely or not at all.

Explaining FOK

Fill or Kill order is the combination of All-or-None (AON) and Immediate-or-Cancel Order (IOC).

This is a time-bound order system. The purpose of this is to ensure that the entire position is executed at prevailing prices in a specific and limited time period. Without this particular order in place, the entire system can witness a mess where large stock orders are placed in large quantities and a prolonged period of time is taken for execution. This time waste can cause great changes in a stock’s price, thereby causing disruption in the Market.

On certain exchanges, the FOK is executed within a few seconds of the stock being revealed to the trading community. If not completely filled, it will be cancelled. This treats the order with the All-or-None order.

On some other exchanges, the FOK is completed by filling the order with the number of shares that the first bid makes available. The unfilled balance of shares would be cancelled. Here, the FOK is a way for both the buyer and seller to fill what is possible and cancel the rest.

Example of Fill or Kill (FOK)

For better understanding, let’s assume that Varun wants to buy 1 lakh shares from stock ABC. Per-share costs Rs. 20. In order to buy the bulk shares fairly and immediately, he has to place a FOK. Varun places the order. The broker receives the order, but wishes to sell only 50,000 shares at Rs. 20 each. In this case, the order will be killed. If the broker is ready to sell 1 lakh shares, but charges Rs. 20.1 each share, the order will be killed. This is because FOK grants the security of fair price and time.

But, if the broker is willing to sell 1 lakh shares at Rs. 20 each instantly, the order will be filled. Note that if the broker wants to sell 1 lakh shares at Rs. 19.99, the order will be filled because he is Offering a better price.