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Placing Orders in the
Commodities Markets
There are many different types of
orders, and each exchange specifies
which orders are allowed in its trading
pits.
Market Orders - market orders
are orders to buy or sell at the best
possible price as soon as possible. They
are the first orders to be filled at any
given price, and are used to enter or
exit the commodity market quickly,
regardless of the current market price.
Stop Orders - stop orders are
traded only when the market price trades
at or through the stop price. A buy
stop order is placed above the current
market price, and is transformed into a
market order when the futures price
trades or is bid at or above the stop
price. A buy stop order can be used to
limit losses on a short position or to
establish a long position. When a stop
loss order is used and the traders
position is offset due to market
movements, the trader is said to have
been "stopped out". A sell stop order
is placed below the current market
price, and is transformed into a market
order when the futures price trades or
is offered at or below the stop price.
A sell stop can be used to limit losses
on a long position or to establish a
short position.
Market-if-Touched (MIT) orders -
These are similar to stop orders in
that they are activated when the price
reaches the order level and they become
market orders once they are activated.
MIT orders are used differently than
stops. A buy MIT order is placed below
the current market price, and
establishes a long position or closes a
short position. A sell MIT order is
placed above the current market price,
and establishes a short position or
closes a long position. Stop and MIT
orders are lower priority orders, and
are filled after market orders.
Limit Orders - limit orders
are generally used to buy or sell at a
specified price, or better. They are
also known as resting orders because
they don't move even once the limit
price has been reach - they never become
market orders. A buy limit order is
placed below the current market price,
and will be filled only at or below the
limit price. A sell limit order is
placed above the current market price,
and will be filled only at or above the
limit price.
ALL ORDERS ARE ASSUMED TO BE "DAY
ORDERS" UNLESS SPECIFIED OTHERWISE.
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