Types of Orders and How to place them properly

source: Orion Futures Group Inc.
When placing an order with a broker, it is very important to make sure you are placing your order properly. Correct placement of an order saves time and assures that your are doing what you are intending to do. At Orion Futures Group, Inc. we are committed to helping our clients until they are comfortable and confident enough to place their own orders properly. Our brokers will repeat the orders back to our clients, and if need be, engage them in a conversation to explain the impact of that particular order and its effects on their current position. A client should never hang up the phone and be concerned that their order was misinterpreted. At Orion Futures Group, Inc., you can be assured that you will never feel uncomfortable after you place an order as to whether your broker understood what you wanted to do. For those that choose the discount service, they should have a firm understanding of the different order types and be comfortable with their use. Proper order placement can help you get the fastest and best possible fill. It is in the proper placement of an order that will help you get your order to the pit as soon as possible. 

Here is a listing of some of the most common order types. After a brief description of the order, an example will follow as to how you would use that particular order. Keep in mind that the orders are used in the same way if you go Long a market or Short a market. You would just tailor the order to suit your current position. All orders are considered day orders and will expire the day you place it unless you specify that you want it to be a GTC order. (Good Till Canceled). If you ever have any questions as to a particular situation and the type of order that would be appropriate, please do not hesitate to contact one of our helpful brokers. 

Market Order

The most common order. This order is used when you want to get the order executed immediately at the "market price". This order is used to enter a new position or to exit an existing position.

Example: My account # is 12345 and I want to Buy 1 May Corn at the market. (This would enable you to go "Long" at the market. You could obviously use this order to Sell 1 May Corn at the market also and go "Short")

Market on Open (MOO)

As the name implies, this order will be executed on the market open within the opening range. This trade is used to enter a new trade, or exit an open trade.

Example: My account # is 12345 and I want to Buy (or sell) 1 May Corn at the Market on Open.

Market on Close (MOC)

As the name implies, this order will be executed on the market close. The fill price will be within the closing range which may in some markets be substantially different from the settlement price. This trade is used to enter a new trade, or exit an open trade.

Example: My account # is 12345 and I want to Buy (or sell) 1 May Corn at the Market on Close.

Limit Order

This order is placed when you are looking to enter a new position, or to exit an open position at a specific price 'or better'. For example, if a person wants to buy 1 May Corn and the current price is 275 per bushel, and they are not willing to buy it any higher than 275 per bushel, (which may happen if you use a market order because while the order is being placed the market could trade higher by the time your order hits the pit) you would place the order to Buy 1 May Corn at 275 Limit. This tells the brokers in the pit that you are looking to purchase the Corn at no higher than 275. The market may trade at 275 several times and you may still not be filled at your price. The reason is that in a Limit Order, you are only guaranteed to be executed if the market trades through the Limit price. If the low of the day is 275 per bushel, it is possible you were executed at that price, but more times than not, your broker will report to you that the trade was "unable". If you are in a position (either long or short) and are looking to exit a trade at a particular price you could also use a limit order. For example, if you are long May Corn at 275 per bushel and want to take profit at 290 per bushel, you would place your order to Sell 1 May Corn at 290 Limit. If you are short 1 May Corn at 275 and want to take your profit when it drops to 265 per bushel, you would place the order to Buy 1 May Corn at 265 Limit. Once again, if the market just touches your Limit price (even 20 times) and doesn't penetrate it, you are not guaranteed a fill and should not be surprised when your broker advises you that you were not filled. Keep in mind that any order that you decide to place is taken as a day order (The order is canceled at the close of the market on the day you placed the order) unless you specify that you want the order to be working until you cancel it. This order is a GTC (Good till Canceled) order, which will be covered later.

Stop Order

This order becomes a "market order" only when the specified price level is reached. This order is used to either enter a new trade or to exit an open trade. The Stop Order does not guarantee that you are going to get in at that exact price, because as stated, when the price is reached or penetrated, the order becomes a market order. A buy stop is placed above the market and a sell stop is placed below the market. Stop orders are commonly used to enter a market when the market is moving in that direction, protect profits, or to attempt to limit losses. (Keep in mind, while trying to limit losses, a stop loss order may not limit your loss to the amount intended) A stop order is considered a day order unless you specify that you want the order to be a GTC order (Good till Canceled)

Examples:

1. Entering a new position:

You call your broker and ask him where May Corn is trading. Your broker tells you it is at 275 per bushel. You are interested in buying a contract, but you don't want to buy it until the market shows you some strength by getting up to 285. This would require you to place your order to Buy 1 May Corn at 285 "on a Stop". This order tells the people in the pit that you are only interested in Buying 1 May Corn if and only if the market goes up to that price and not before. When the market trades at 285, the order becomes a market order and you will get the next best price. If the market is trading at 284 1/2 and the next trade is at 286 1/4, you may be filled at or around 286 1/4 not the 285 that you had as an order. Remember, on a stop order, you are filled at the market once it has traded at or through the specified price.

2. To Protect Profits

You call your broker because you are "Long" 1 contract of May Corn at 250 per bushel. Your broker tells you that the current price is 285 per bushel. You are obviously excited at your $1,750.00 profit (this profit is unrealized because you haven't sold it yet) and want to protect some of it in the event that the market reverses and you lose all of your hard-earned money. You decide to place a Stop Order at 270 per bushel. By doing so, you would tell your broker that you want to Sell 1 May Corn at 270 Stop. This means that if the market started reversing and got to 270, your stop loss would become a market order and you would be out at or near the 270 price. Therefore, you have locked in a profit of roughly 20 cents or $1,000.00 and can chalk that up as a good trade. (The above is an example and does not take into effect the obvious cost of commissions and fees. You should plan on deducting these costs, which range from $40. to $100., from your profit to get the net profit.)

3. Attempting to Limit Losses

You call your broker because you are "Long" 1 contract of May Corn at 250 per bushel. Your broker tells you that the current price is 245 per bushel. You are not happy because you realize you are down 5 cents or $250 on the trade. You are not willing to risk more than $500 dollars on the trade so you decide to place a Stop Loss Order with your broker. You advise him to Sell 1 May Corn at 240 Stop. Again, this does not guarantee you can't lose more than $500 because as stated before, when the market trades at or through 240 per bushel, the stop loss order becomes a market order and you are filled at the best price the floor broker can get for you. That may be 240, but don't be disappointed if your broker gives you 239 1/2 or worse. 

Market If Touched (MIT) This order is similar to a stop order in that it is executed only if the price reaches a specified level. Like a stop order, when the market trades at or through the price, your order becomes a market order. The difference between the stop order and an MIT order is that an MIT order to sell is placed above the current market price, and an MIT order to buy is placed below the current market price. *Not all exchanges accept MIT orders. Please consult with your Orion Futures Group, Inc. broker before placing this type of order.

Good Till Canceled (GTC)

These orders are also known as "open orders". This type of order is always working on the floor of the exchange unless it is executed, canceled by the client, or replaced by another order. When you place an order with a broker, it is assumed a day order and will expire at the close of that markets trading day. If you wish to have an order working beyond the day you place it, you must specify GTC.

Fill Or Kill (FOK)

This order is a limit order that is sent to the pit to be executed immediately and if not filled it is canceled.

Spread Order

A simple spread order involves two positions, one long and one short. They are taken in the same or economically related commodities. Prices of the two futures contracts therefore tend to go up and down together, and gains on one side of the spread are offset by losses on the other. The spreaders goal is to profit from a change in the difference between the two futures prices. Is virtually unconcerned whether the entire price structures moves up or down, just so long as the futures contract he bought goes up more (or down less) than the futures contract he sold. Spread trading may not be less risky than an outright long or short position. For more detailed information on spread trading please consult with your Orion Futures Group broker. 

Placing your order properly will enable you to save time and reduce the possibility of making and error, which can cost you money. Your Orion Futures Group, Inc. broker is here to make sure that when an order is filled, you will be called promptly. There are those occasions when filled orders coming in from the floor will be slow in coming. The markets may be trading fast or experiencing heavy volume. This will slow down the reporting of fills since the floor brokers main priority is to enter new trades and report the fills back when things are not so busy. If you ever have a question about a particular fill price or anything else regarding your account activity, do not hesitate to contact your broker.

I hope you have found this guide to placing orders helpful. If there is anything that you still have questions on feel free to contact our brokers toll free 1-888-769-9499


TRADING FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.