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BIG DOGS EXPOSED
Sound familiar? You have spent years in search of commodities investment research and commodity trading rules. All you really want is the "Holy Grail" of entry techniques. You add one indicator on top of another, switch from one guru to the next, until you are so confused and unsure of your entry system that you can't make entry decisions and stay organized. You get so distracted and frustrated that you quit watching the markets all together!
(Author: Peter R. Bain)
Shows you how FAST you can make money when the BIG DOGS get their way, which is ALL THE TIME. And, we're talking ALL 80 markets here - not just stocks and commodities. Even I am STILL surprised by how much power they have.
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.
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!
That's it folks ... everything you ever wanted to know about commodity trading rules ... and more.
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