A Kill or Fill order, often referred to as a “Fill or Kill” (FOK) order, is a specific type of trading instruction that demands immediate execution of the entire order quantity or else the order is canceled completely. This means that either the full order volume is filled instantly at the specified price or better, or no part of the order is executed at all. There is no partial filling allowed with this type of order.

Kill or Fill orders are commonly used by traders who want to avoid the risks associated with partial executions. Partial fills can sometimes lead to unfavorable average prices, especially in fast-moving or illiquid markets. By using a Kill or Fill order, traders can ensure that their entire intended position is established or closed at once, maintaining control over the trade execution and price exposure.

How does a Kill or Fill order work in practice? Let’s say a trader wants to buy 10,000 shares of a particular stock at $50 per share using a Kill or Fill order. When the order hits the market, it will only execute if all 10,000 shares can be purchased immediately at $50 or less. If fewer shares are available at that price, the order will be canceled entirely. This contrasts with a “Limit” order, which may allow partial fills as shares become available, potentially over a longer period.

Formulaically, the concept can be expressed as:

If Quantity Available at Limit Price >= Order Quantity, then Execute Full Order Else Cancel Order.

Kill or Fill orders are particularly useful in markets where price volatility is high or where liquidity is limited. For example, in foreign exchange (FX) trading or Contracts for Difference (CFD) trading, where prices can change rapidly, a Kill or Fill order helps traders avoid unintended partial executions that might expose them to price slippage.

Real-Life Example:

Consider a trader dealing in the S&P 500 index CFDs. The trader wants to sell 50 contracts at a limit price of 4000 points. They place a Kill or Fill order. If the market has at least 50 contracts available at that price, the entire order is filled immediately. However, if only 30 contracts are available at the limit price, the order is canceled. This ensures the trader does not sell fewer contracts than intended, which might fail to meet their risk management or trading strategy requirements.

Common Mistakes and Misconceptions:

One common misconception is confusing Kill or Fill orders with Immediate or Cancel (IOC) orders. While both require immediate execution, IOC orders allow partial fills with the remaining unfilled portion canceled, whereas Kill or Fill orders demand the entire quantity be filled or none at all.

Another mistake traders make is assuming Kill or Fill orders guarantee execution. They do not guarantee that the order will be filled; they only guarantee that if the order is filled, it will be done in full and immediately. If liquidity is insufficient, the order will simply be canceled, which might delay the trade or require a price adjustment.

People often ask related questions such as “What is the difference between Kill or Fill and Good Till Cancel orders?” or “When should I use a Kill or Fill order?” The key difference is that Good Till Cancel (GTC) orders remain active until executed or manually canceled, allowing partial fills over time. Kill or Fill orders are used when immediate and full execution is critical, such as during earnings announcements or when entering large positions where partial fills could disrupt the strategy.

In summary, a Kill or Fill order is a powerful tool for traders who need certainty that their entire order will be executed at once or not at all, thus avoiding partial fills and potential price slippage. However, it requires careful consideration of market liquidity and timing, as the order may frequently be canceled if the full quantity isn’t available instantly.