Types 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 your reference.

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 market order.

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 Trade.

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 all exchanges.

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.

C. GOOD-UNTIL-CANCELLED 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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