Types of Orders
and How to place them properly
When placing an order with a broker, it is very important
to make sure you are placing your order properly. Correct
placement of an order saves time and assures that your
are doing what you are intending to do. At CommodityBroker.com
we are committed to helping our clients until they are
comfortable and confident enough to place their own orders
properly. Our brokers will repeat the orders back to our
clients, and if need be, engage them in a conversation
to explain the impact of that particular order and its
effects on their current position. A client should never
hang up the phone and be concerned that their order was
misinterpreted. At CommodityBroker.com you can be assured
that you will never feel uncomfortable after you place
an order as to whether your broker understood what you
wanted to do. For those that choose the discount service,
they should have a firm understanding of the different
order types and be comfortable with their use. Proper
order placement can help you get the fastest and best
possible fill. It is in the proper placement of an order
that will help you get your order to the pit as soon as
possible.
Here is a listing of some of the most common order types.
After a brief description of the order, an example will
follow as to how you would use that particular order.
Keep in mind that the orders are used in the same way
if you go Long a market or Short a market. You would just
tailor the order to suit your current position. All orders
are considered day orders and will expire the day you
place it unless you specify that you want it to be a GTC
order. (Good Till Canceled). If you ever have any questions
as to a particular situation and the type of order that
would be appropriate, please do not hesitate to contact
one of our helpful brokers.
Market Order
The most common order. This order is used when
you want to get the order executed immediately at the
"market price". This order is used to enter
a new position or to exit an existing position.
Example: My account # is 12345 and I want to Buy
1 May Corn at the market. (This would enable you to go
‘Long’ at the market. You could obviously use
this order to Sell 1 May Corn at the market also and go
‘Short’)
Market on Open (MOO)
As the name implies, this order will be executed on the
market open within the opening range. This trade is used
to enter a new trade, or exit an open trade.
Example: My account # is 12345 and I want to Buy
(or sell) 1 May Corn at the Market on Open.
Market on Close (MOC)
As the name implies, this order will be executed on the
market close. The fill price will be within the closing
range which may in some markets be substantially different
from the settlement price. This trade is used to enter
a new trade, or exit an open trade.
Example: My account # is 12345 and I want to Buy
(or sell) 1 May Corn at the Market on Close.
Please be aware that not all markets accept this order.
Please contact your CommodityBroker.com for a list of
exchanges that accept this order type.
Limit Order
This order is placed when you are looking to enter a new
position, or to exit an open position at a specific price
‘or better’. For example, if a person wants
to buy 1 May Corn and the current price is 275 per bushel,
and they are not willing to buy it any higher than 275
per bushel, (which may happen if you use a market order
because while the order is being placed the market could
trade higher by the time your order hits the pit) you
would place the order to Buy 1 May Corn at 275 Limit.
This tells the brokers in the pit that you are looking
to purchase the Corn at no higher than 275. The market
may trade at 275 several times and you may still not be
filled at your price. The reason is that in a Limit Order,
you are only guaranteed to be executed if the market trades
through the Limit price. If the low of the day is 275
per bushel, it is possible you were executed at that price,
but more times than not, your broker will report to you
that the trade was ‘unable’. If you are in a
position (either long or short) and are looking to exit
a trade at a particular price you could also use a limit
order. For example, if you are long May Corn at 275 per
bushel and want to take profit at 290 per bushel, you
would place your order to Sell 1 May Corn at 290 Limit.
If you are short 1 May Corn at 275 and want to take your
profit when it drops to 265 per bushel, you would place
the order to Buy 1 May Corn at 265 Limit. Once again,
if the market just touches your Limit price (even 20 times)
and doesn’t penetrate it, you are not guaranteed
a fill and should not be surprised when your broker advises
you that you were not filled. Keep in mind that any order
that you decide to place is taken as a day order (The
order is canceled at the close of the market on the day
you placed the order) unless you specify that you want
the order to be working until you cancel it. This order
is a GTC (Good till Canceled) order, which will be covered
later.
Stop Order
This order becomes a ‘market order’ only when
the specified price level is reached. This order is used
to either enter a new trade or to exit an open trade.
The Stop Order does not guarantee that you are going to
get in at that exact price, because as stated, when the
price is reached or penetrated, the order becomes a market
order. A buy stop is placed above the market and a sell
stop is placed below the market. Stop orders are commonly
used to enter a market when the market is moving in that
direction, protect profits, or to attempt to limit losses.
(Keep in mind, while trying to limit losses, a stop loss
order may not limit your loss to the amount intended)
A stop order is considered a day order unless you specify
that you want the order to be a GTC order (Good till Canceled)
Examples:
1. Entering a new position:
You call your broker and ask him where May Corn is trading.
Your broker tells you it is at 275 per bushel. You are
interested in buying a contract, but you don’t want
to buy it until the market shows you some strength by
getting up to 285. This would require you to place your
order to Buy 1 May Corn at 285 ‘on a Stop’.
This order tells the people in the pit that you are only
interested in Buying 1 May Corn if and only if the market
goes up to that price and not before. When the market
trades at 285, the order becomes a market order and you
will get the next best price. If the market is trading
at 284 ½ and the next trade is at 286 ¼,
you may be filled at or around 286 ¼ not the 285
that you had as an order. Remember, on a stop order, you
are filled at the market once it has traded at or through
the specified price.
2. To Protect Profits
You call your broker because you are ‘Long’
1 contract of May Corn at 250 per bushel. Your broker
tells you that the current price is 285 per bushel. You
are obviously excited at your $1,750.00 profit (this profit
is unrealized because you haven’t sold it yet) and
want to protect some of it in the event that the market
reverses and you lose all of your hard-earned money. You
decide to place a Stop Order at 270 per bushel. By doing
so, you would tell your broker that you want to Sell 1
May Corn at 270 Stop. This means that if the market started
reversing and got to 270, your stop loss would become
a market order and you would be out at or near the 270
price. Therefore, you have locked in a profit of roughly
20 cents or $1,000.00 and can chalk that up as a good
trade. (The above is an example and does not take into
effect the obvious cost of commissions and fees. You should
plan on deducting these costs, which range from $40. to
$100., from your profit to get the net profit.)
3. Attempting to Limit Losses
You call your broker because you are ‘Long ‘
1 contract of May Corn at 250 per bushel. Your broker
tells you that the current price is 245 per bushel. You
are not happy because you realize you are down 5 cents
or $250 on the trade. You are not willing to risk more
than $500 dollars on the trade so you decide to place
a Stop Loss Order with your broker. You advise him to
Sell 1 May Corn at 240 Stop. Again, this does not guarantee
you can’t lose more than $500 because as stated before,
when the market trades at or through 240 per bushel, the
stop loss order becomes a market order and you are filled
at the best price the floor broker can get for you. That
may be 240, but don’t be disappointed if your broker
gives you 239 ½ or worse.
Market If Touched (MIT)
This order is similar to a stop order in that it is executed
only if the price reaches a specified level. Like a stop
order, when the market trades at or through the price,
your order becomes a market order. The difference between
the stop order and an MIT order is that an MIT order to
sell is placed above the current market price, and an
MIT order to buy is placed below the current market price.
*Not all exchanges accept MIT orders. Please consult with
your Orion Futures Group, Inc. broker before placing this
type of order.
Good Till Canceled (GTC)
These orders are also known as ‘open orders’.
This type of order is always working on the floor of the
exchange unless it is executed, canceled by the client,
or replaced by another order. When you place an order
with a broker, it is assumed a day order and will expire
at the close of that markets trading day. If you wish
to have an order working beyond the day you place it,
you must specify GTC.
Fill Or Kill (FOK)
This order is a limit order that is sent to the pit to
be executed immediately and if not filled it is canceled.
Spread Order
A simple spread order involves two positions, one long
and one short. They are taken in the same or economically
related commodities. Prices of the two futures contracts
therefore tend to go up and down together, and gains on
one side of the spread are offset by losses on the other.
The spreaders goal is to profit from a change in the difference
between the two futures prices. Is virtually unconcerned
whether the entire price structures moves up or down,
just so long as the futures contract he bought goes up
more (or down less) than the futures contract he sold.
Spread trading may not be less risky than an outright
long or short position. For more detailed information
on spread trading please consult with your Orion Futures
Group broker.
Placing your order properly will enable you to save time
and reduce the possibility of making and error, which
can cost you money. Your CommodityBroker.com broker is
here to make sure that when an order is filled, you will
be called promptly. There are those occasions when filled
orders coming in from the floor will be slow in coming.
The markets may be trading fast or experiencing heavy
volume. This will slow down the reporting of fills since
the floor brokers main priority is to enter new trades
and report the fills back when things are not so busy.
If you ever have a question about a particular fill price
or anything else regarding your account activity, do not
hesitate to contact your broker.
I hope you have found this guide to placing orders helpful.
If there is anything that you still have questions on
feel free to contact our brokers toll free 1-888-769-9399.
