How spread betters can have it both ways

As a novice, your best bet is to get to grips with the basic order types these are the limit order (specifying a 'no worse than' price); the market order ('get me in or out at the current price'); and the stop ('get me out at our agreed price, or close to it'). However, beyond those there are some fancier options. One of them is the 'OCO'.

The name is short for 'one cancels the other'. And it does pretty much what it says on the tin. For example, say you expect market volatility following an important piece of news - the latest non-farm payroll figures from the US, for example. If these come in lower than expected, the stock market and the US dollar will often react by falling. The opposite is true when they come in above expectation.

What's more, since the FTSE 100 here tends to track movements in the US Dow Jones, a good US figure often pushes our market up too. The question is: do you buy or sell the FTSE ahead of the announcement? Ideally, you want to be able to pounce either way. Enter the OCO.

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You could ask your broker to place one OCO order to buy the index at, say, 5,900 (on good data) and another to sell at 5,800 (on poor US data). If the FTSE rises sharply, the buy order executes and the sell gets cancelled, and vice versa.

Or, imagine you are already long the FTSE with a buy order. You could set up an OCO that sells at a price above the current index level (to lock in a profit) or sells below the current index level (to cap losses). The point is that one cancels the other so that you are not left with an unwanted open short position once the OCO has executed.

Sure, these are not order types that a beginner will usually need to use. But they can be useful in a number of situations (beyond the two outlined above) for the more experienced trader.