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TYPES OF ORDERS l.
THE MARKET ORDER
This is the most commonly used order, and is appropriate to
get you into or out of a position. It will save you from having to chase the
market. This type of order is executed at the best possible price obtainable as
soon as your order reaches the trading pit and hits the broker's hand. It has to be filled ASAP.
The broker can't use discretion and look to see if the market will trade up a
couple ticks. He just acts unless it is lock limit and no orders are
filled.
2. LIMIT ORDERS
This is an order to buy or sell at a designated price.
Such an order to buy is placed below the market, while one to sell is placed
above the market. Please note that the market may never get high enough or low
enough to trigger your limit order, and you could miss getting in or out if you
use a limit order. Even though the market might touch your limit price several
times, there are not guarantees that you will get your fill at your price.
Usually, the market has to trade BETTER than your limit price in order for you
to get your fill.
3. OR BETTER (OB)
The pit broker is obligated to get the best possible price
for you. By putting an OB on an order, this does not cause the broker to work
any harder. Also, there’s a downside to the use of this designation. Traders
invariably ask for their price and say “or better” out of sheer habit. The
problem is, this essentially makes your order a “Limit Order”. Let’s say you
place your order to buy CH2 at 2.08 OB and the market suddenly goes to 2.07. In
this case, the broker can’t buy until price hits 2.08. That’s because it’s a
limit order.
4. MARKET IF TOUCHED (MIT)
Let’s suppose corn is trading at 2.09 and you want 10 in
STARTING AT 2.08 MIT. Should corn trade down to 2.08, then your MIT order
automatically becomes a market order. With me so far? So, you want 10
contracts of corn but you only want in if the price action hits 2.08. What
happens here is your order becomes a market order, which means the broker gets
you filled at the best possible price. You might get one contract at 2.08, some
at 2.09, some at 2.10, etc. – perhaps not all at your specified price of 2.08 if
the market bounces. Got it?
If, on the other hand, you said 2.08 limit on the 10
contracts, you might be faced with a situation where you get filled for one
contract at 2.08 but none of the others if we pop back up to 2.09. That’s the
suttle – but big - difference between MIT and LIMIT orders. MIT is less
restrictive than LIMIT.
Please note that – and this should be obvious – an MIT
order becomes a market order once the limit price is touched or passed through.
Execution can be above, at, or below the price you have specified.
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.
The difference here between an MIT and a stop order is a
Buy Stop is placed above where the market is trading and a Sell Stop is placed
below where the market is trading.
Phew, wasn’t that easy?
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, THE CUSTOMER 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. TAKE IT FROM ONE WHO HAS
BEEN THERE AND HAD THAT DONE TO HIM. TRADE AND LEARN.
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 ultimately 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. Stop limit
orders should usually not be used when trying to exit a position. If a customer
does not give a limit price, then the stop price and the limit price are meant
to be identical.
7. STOP CLOSE ONLY
The stop price on a stop close only order will be triggered
only if the market touches the stop during the close of trading. The
disadvantage of this order is the fast pace of the market in the last few
minutes of trading may cause your order to be filled at an undesirable price.
It can, however, protect you from getting filled during adverse price
fluctuations during the course of the day.
8. MARKET ON OPENING
This is an order that you can use to be executed during the
opening range of trading at the best possible price obtainable within the
opening range. The broker has some discretion to fill in the opening range
versus a market order. Market orders are best if all you want to do is get
out. The MOO has less chance of being "unable" to fill, but you may get a
better fill with MOO if it works in your direction. If you want out, then
go Market order. Not all exchanges recognize this type of order. One such
exchange is the Chicago Board of Trade.
9. MARKET ON CLOSE (MOC)
This is an order that will be filled during the final
seconds of trading at whatever price is available.
PLEASE NOTE: A FLOOR BROKER RESERVES 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 to achieve an immediate
fill, but at a specified price. The floor broker will bid or offer the order
three times, and immediately return either a fill or an unable.
ll. ONE CANCELS THE OTHER (OCO)
This is a combination of two orders written on one order
ticket. This instructs 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.)
PLEASE NOTE: CANCEL/REPLACE OF AN OCO ORDER
IS NOT ROUTINELY ACCEPTED UP TO FIFTEEN MINUTES OF THE CLOSE OF TRADING. DURING
THAT TIME, THE FLOOR BROKER WILL ACCEPT, CANCELLING BOTH SIDES AND REPLACING
WITH EITHER MOC OR MARKET ORDERS, BUT CANNOT GUARANTEE AGAINST A DOUBLE FILL.
12. SPREAD
Here, you wish 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 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!
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