Commodity Futures Trading Order Entry Handbook
The types of orders most commonly used are briefly described below: (Glossary of terms)
l. THE MARKET ORDER
The market order is the most frequently used order. It is a very good order to use once you have made a decision about opening or closing a position. It can keep the customer from having to chase a market trying to get in or out of a position. The market order is executed at the best possible price obtainable at the time the order reaches the electronic marketplace.
2. LIMIT ORDERS
The limit order is an order to buy or sell at a designated price. Limit Orders to buy are placed below the current market price while limit orders to sell are placed above the current market price. Since the market may never get high enough or low enough to trigger a limit order, a customer may miss the market if he uses a limit order. (Even though you may see the market touch a limit price several times, this does not guarantee or earn the customer a fill at that price. In most instances, the market must trade BETTER than the limit price for the customer to be guaranteed a fill.)
3. STOP ORDER
Stop orders can be used for three purposes:
A. is used to minimize a loss on a long or short position.
B. is used to protect a profit on an existing long or short position.
C. is used to initiate a new long or short position. A buy stop order is placed above the current market price and a sell stop order is placed below the current market price. Once the stop price is touched, the order is treated like a market order and will be filled at the best possible price.
PLEASE NOTE; WHILE STOPS ARE NORMALLY ELECTED ONLY WHEN THE SPECIFIC PRICE IS TOUCHED, THEY CAN BE ELECTED WHEN THE OPENING OF A MARKET IS SUCH THAT THE PRICE IS THROUGH THE STOP LIMIT. IN THIS CASE, THE CUSTOMER CAN ROUTINELY EXPECT THE FILL TO BE MUCH WORSE THAN THE ORIGINAL STOP OR BETTER. THIS APPLIES TO STOP ORDERS PLACED BEFORE THE OPENING OF TRADING.
4. STOP LIMIT ORDERS
A stop limit order lists two prices and is an attempt to gain more control over the price at which your stop is filled. The first part of the order is like the above stop order. The second part of the order specifies a limit price. This indicates that once your stop is triggered, you do not wish to be filled beyond the limit price. Stop limit orders should usually not be used when trying to exit a position, unless the limit price is placed far enough away. The limit price should be higher then the stop price on Buy orders and then limit price should be lower than the stop price on sell orders. If a customer does not give a limit price, then the stop price and the limit price are meant to be identical.
The customer wishes to take a simultaneous long and short position in an attempt to profit via the price differential or 'spread' between two prices. A spread can be established between different months of the same commodity, between related commodities or between the same or related commodities traded on two different exchanges. A spread order can be entered at the market or you can designate that you wish to be filled when the price difference between the commodities reaches a certain point (or premium).
BUY 1 JUNE LIVE CATTLE, SELL 1 AUGUST LIVE CATTLE PLUS 100 TO THE AUGUST SELL SIDE. This means that the customer wants to initiate or liquidate the spread when August Cattle is 100 points higher than June cattle. At this time, most exchanges do not report spread transactions on their quotation feeds. A spread broker has great leeway to ensure he can obtain prices required by limits. He cannot be held to any price differentials which seem to appear on quotation equipment!
As futures and options trading becomes more and more sophisticated, new strategies and techniques may arise. Certain option orders called 'spreads' may not look much like traditional spreads. There may be two buys and no sells, the quantity may be a ratio, it may include futures and options on the same order, and many more. If you have any questions about this type of order, please let your account executive know that you may need help and he or she will be happy to assist you.
EXCHANGE INFORMATION Different Exchanges accept different orders. All of the orders which we have discussed are not accepted by all exchanges.