Of Commodity Contract Orders
The types of orders most commonly used are
briefly described below. It is very important that you learn
the different types of orders that you will be using when you
place your trades. When you finish this term, I want you to
have the confidence to phone your broker and place your orders
correctly without any help. If you are familiar with the
orders and how you want to use them, it will build your
confidence also. The most commonly used orders are the
"MARKET ORDER" the "LIMIT ORDER" the
"OR BETTER" and the "DAY ORDER" but each
one of them are unique in their own way. Print these out for
1. THE MARKET ORDER: The
market order is the most frequently used order. In most
instances it assures you of getting a position and eliminates
"chasing" a market 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 trading pit.
Write the abbreviation MKT indicating it is a market order or
you can underscore the order instructions to denote it is a
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 market while limit
orders to sell are placed above the market. 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 your limit
price several times, this does not guarantee or earn your
customer a fill at that price.
3. OR BETTER: "OR
BETTER" is a commonly misunderstood order type. ONLY USE
"OR BETTER" IF THE MARKET IS "OR BETTER"
AT THE TIME OF ENTRY TO DISTINGUISH THE ORDER FROM A STOP. OB
on an order does not cause the pit broker to work harder. It
is always the broker's job to provide you with the best
possible price. If an order is truly "or better,"
then this designation assures the broker that you have not
left "stop" off the order. In many instances,
unmarked "or better" orders are returned for
clarification, potentially costing your customer valuable time
in the pit, and possibly a fill. Orders that are not "or
better" when entered only serve to use the pit broker's
time upon receipt as he checks to see whether or not the order
deserves a fill. Sometimes, using the "or better"
designation before the opening is helpful in assuring the
executing broker that your order is meant to filled.
4. MARKET IF TOUCHED (MIT):
MITs are the opposite of stop orders. Buy MITs are placed
below the market and Sell MITs are placed above the market. An
MIT order is usually used to enter the market or initiate a
trade. An MIT order is similar to a limit order in that a
specific price is placed on the order. How- ever, an MIT order
becomes a market order once the limit price is touched or
passed through. An execution may be at, above, or below the
originally specified price. An MIT order will not be executed
if the market fails to touch the MIT specified price.
5. STOP ORDER: Stop
orders can be used for three purposes: a. to minimize a loss
on a long or short position, b. to protect a profit on an
existing long or short position, or c. to initiate a new long
or short position. A buy stop order is placed above the market
and a sell stop order is placed below the market. 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 AND MITS 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
OR MIT LIMIT. IN THIS CASE, YOU CAN ROUTINELY EXPECT THE FILL
TO BE MUCH WORSE THAN THE ORIGINAL STOP OR BETTER ON THE MIT.
THIS APPLIES TO STOP ORDERS AND MIT ORDERS PLACED BEFORE THE
OPENING OF TRADING.
6. 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 written 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. Care should be taken when
considering stop limit orders, especially when trying to exit
a position, because of the possibility of not being filled
even though the stop portion of the order is elected. There is
no Stop Limit order without a second price. If your order
cannot be filled by the floor broker immediately at the Stop
price, it becomes a straight limit order at the stop price.
7. STOP CLOSE ONLY: The
stop price on a stop close only will only be triggered if the
market touches or exceeds the stop during the period of time
the exchange has designated as the close of trading (usually
the last few seconds or minutes).
8. MARKET ON OPENING:
This is an order that you wish to be executed during the
opening range of trading at the best possible price obtainable
within the opening range. Not all exchanges recognize this
type of order. One exchange which does is the Chicago Board of
9. MARKET ON CLOSE (MOC):
This is an order that will be filled during the period
designated by the exchange as the close at whatever price is
available. PLEASE NOTE: A FLOOR BROKER MAY RESERVE THE RIGHT
TO REFUSE AN MOC ORDER UP TO FIFTEEN MINUTES BEFORE THE CLOSE
DEPENDING UPON MARKET CONDITIONS.
10. FILL OR KILL: The
fill or kill order is used by customers wishing an immediate
fill, but at a specified price. The floor broker will bid or
offer the order three times and return to you with either a
fill or an unable, but it will not continue to work through-
out the session.
11. ONE CANCELS THE OTHER (OCO):
This is a combination of two orders written on one order
ticket. This instructs the floor personnel that once one side
of the order is filled, the remaining side of the order should
be cancelled. By placing both instructions on one order,
rather than two separate tickets, you eliminate the
possibility of a double fill. This order is not acceptable on
12. SPREAD: 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). For example:
BUY 1 JUNE LIVE CATTLE, SELL 1 AUGUST LIVE CATTLE PLUS 100 TO
THE AUGUST SELL SIDE. This means that you want 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. A spread broker has great leeway to
ensure he can obtain prices required by limits. In most cases,
he cannot be held to any price differentials which seem to
appear on quotation equipment. Please make sure you understand
how spread trades work!
13. OPEN ORDERS: These
orders are also known as Good Till Cancelled Orders and will
remain valid until cancelled.
14. DISCRETION ORDERS (DRT):
On some orders, it is possible to give the broker some
discretion to fill the order as he sees fit. This leeway can
be very broad or it can be narrowly defined. Remember that it
is always in the brokers' best interest to fill an order at
the best available price. DRT orders can be especially useful
if you have made prior arrangements with the floor or the
specific filling broker when you need assistance in executing
a large order or in especially thin markets.
15. OTHER: 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 an
order, discuss your intentions with your broker or clerk
before order placement. Different exchanges accept different
orders. All of the orders which discussed here are not
accepted by all exchanges.
A. OTHER New contracts are
constantly being introduced at the various exchanges, and, as
foreign market places become more accessible, new exchanges
and their contracts are also being added. For specific
information regarding the contracts and types of orders
accepted, please contact your broker or clerk. Any individual
exchange may change the orders which it will accept without
prior notice, and even a particular executing broker at a
given exchange may refuse to accept certain types of orders at
their sole discretion.
B. PROCEDURES FOR ORDER
PLACEMENT Several commodities are traded on more than one
exchange. It is vital that you indicate the exchange on which
you wish your order to be executed. For example Silver is
traded on the Mid America Exchange, the New York COMEX
Exchange, and the CBOT. If your order did not specify the
exchange on which you wished the order to be executed, the
clerk would most likely place the order at the COMEX because
it is the primary market. Please identify the proper exchange
to avoid errors. If you have any questions about the quality
of the fill you received you may request that the broker
obtain official time and sales. Time and Sales can only give
an indication of the market. There are NO specific rules about
how long it should take an order to be filled once it is
elected other than for market on close or opening orders.
Instead, most firms rely on ordinary custom and practice to
determine when an order "should" be filled. Also,
rules vary from exchange to exchange with regard to "uptick"
rules following the election of a stop. Under ordinary market
conditions, market orders should be filled and reported in a
timely fashion. If you have not received a reported fill from
your broker in a reasonable amount of time you may place an
order check. In the case of a "fast" market, it may
take extra time for the order to be reported back to you.
Refrain from placing order checks during these hectic periods.
DO NOT KEEP PLACING ORDER
CHECKS FOR THE SAME ORDER. If you
wish to cancel an existing order, phone the broker and inform
him or her that you wish to straight cancel an order and give
your account number, the order number, and the commodity. The
broker should repeat your instructions and cancel your order.
If you wish to change part of an order you have already
placed, you may do so by entering a cancel/replace order.
Depending on firm policy, you may or may not receive a second
order number from the order clerk for a can- cel/replace.
Certain parts of an order cannot be changed. This includes
buy/sell, the commodity, the month, a strike price, and
put/call. In some instances, your cancel or cancel/replace
order will reach the pit too late to effect the change you
desire. In this case you will be reported a fill for the
original ticket as "TOO LATE TO CANCEL (TLTC)". If
the order was a cancel/replace, then the new order is
considered dead and does not work in the pit.
ORDERS Good until cancelled (GTC, OPEN) orders are
generally held on file and considered to be active unless
cancelled by you. Upon expiration of the contract, the GTC
order will be automatically cancelled. Some firms do not take
open orders, or cancel them at the end of every week or every
month. It is usually the customer's responsibility to verify
what orders are working.
D. OPTION ORDERS The
exchanges will accept the same types of pricing instructions
that they currently accept for futures orders. Because option
orders require additional information, they must be read very
carefully and in the appropriate order.
E. NIGHT ORDERS / FOREIGN
ORDERS With the advent of round-the-clock trading, it is
now possible to trade in the cash market, on foreign
exchanges, and through electronic trading sessions such as
Globex, Access, and Project A. Check with your firm to
determine what their procedures are for these non-tradi-
tional sessions. EFPs are synthetic contracts in the cash
market which are exchanged for futures the next day. EFP
stands for Exchange for Physicals. There are EFP markets in
pre- cious metals and currency markets. Market makers give a
bid/offer spread between the price they are willing to pay and
the price they are willing to sell. At certain times, this
spread can be quite narrow and at others can be quite wide.
Some market makers will take stops based on the bid, the
offer, or the midpoint. Remember that the EFP market is not a
regulated market and that there is no Time & Sales.
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