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An excerpt from
Trading Commodity Futures: www.tradingcommodityfutures.biz
Order Types
It is absolutely
CRITICAL that you understand the various types of orders that can
and cannot be placed. It varies by exchange. Your broker will advise
you.
Market Orders are orders to buy or sell as soon as
possible (price is a secondary consideration). Market Orders take
priority over all other types of orders used by an exchange. They permit
you to enter and exit a market very quickly- often in seconds. “At
market” is the term used for market orders.
Stop Orders are filled only when the price reaches the
specified stop price.
A
buy stop order is placed
above the current market price and is transformed to a market order when
the price trades (or is “bid”) at- or above the stop price. A buy stop
is used to establish a long position in the market or to limit losses
when the trader has established a short position. (A “stop loss”)
A
sell stop order is
placed below the current market price and is transformed to a market
order when the price trades (or is “asked”) at or below the stop price.
The sell stop is used to establish a short position in the market or to
limit losses when the trader has established a long position.
A
Market If Touched
(MIT) or Board
Order is also activated when the market price reaches the
specified price. They too become market orders when activated, but a buy
MIT order is placed below the current market price to establish a
long position or exit a short position. A sell MIT order is placed
above the current market price to establish a short position or to
exit a long position. MIT orders are not allowed on the CBOT but are
used on the CME.
A
Limit
order is used to buy or sell at a specified price or better.
Some people call them resting
orders because they do not become market orders. For that
reason, they receive the lowest priority treatment and are filled only
after market, stop
and MIT orders
are filled. This means that you may not get your limit order filled even
if the market price touches your limit price.
A buy limit order
is placed below the current market price and will only be filled at or
below the limit price.
A sell limit order
is placed above the current market price and will only be filled at or
above the limit price.
A stop limit order
restricts execution to the limit price or better.
A buy stop limit
order is placed above the current market price and is activated when
the price is bid or traded at or above the stop value. But, it will not
be filled unless the price remains at or below the stop value.
A sell stop limit
order is placed below the current market price and is activated when
the price is offered or traded at or below the stop value. But, it will
not be filled unless the price remains at or above the stop
value.
Other
order specifications a trader may couple with the above include the
following:
A
Fill or Kill
(FOK) or
Quick Order
is a limit order which is cancelled if not filled immediately.
A
Time Limit Order
must be filled before the specified time. Such an order
may specify that it is to be executed during the opening or closing
range.
A
Good Till Cancelled
(GTC) order remains on the books until filled or
cancelled by the trader. Variations include Good This Week (GTW) and
Good This Month (GTM).
A
One Cancels Other
(OCO) order means that if one order is filled the other
order is cancelled. This may be used when a trader is placing orders
going both long and short in the same market.
DISCLOSURE OF RISK:
THE RISK OF LOSS IN TRADING
FUTURES AND OPTIONS CAN BE SUBSTANTIAL; THEREFORE, ONLY GENUINE RISK
FUNDS SHOULD BE USED. FUTURES AND OPTIONS MAY NOT BE SUITABLE
INVESTMENTS FOR ALL INDIVIDUALS, AND INDIVIDUALS SHOULD CAREFULLY
CONSIDER THEIR FINANCIAL CONDITION IN DECIDING WHETHER TO TRADE. OPTION
TRADERS SHOULD BE AWARE THAT THE EXERCISE OF A LONG OPTION WOULD RESULT
IN A FUTURES POSITION.
HYPOTHETICAL PERFORMANCE RESULTS
HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO
REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL,OR IS LIKELY TO,
ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.IN FACT,THERE ARE
FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS
AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING
PROGRAM.
ONE OF THE LIMITATIONS OF
HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED
WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES
NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN
COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING.
FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A
PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL
POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE
NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE
IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY
ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND
ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
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