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Investment Sector: Commodities Submitted by Indiamcx 
, Sr. Technical Analyst & Portfolio Manager (Commodities)
at IndiaMCX Advisory Services
4 months ago Add Tag |
I Found Really Wonderful Information Abt. Commodities Market So Here I'm Trying 2 Share With U Have A Look on This & Forward 2 Others Who Are in Beginning Stage or Still Want 2 Learn @ Higher Stage Bz Learning is "Endless Journey".
Different Types of Orders
Market Orders
A market order is the simplest of orders and is used when the greatest priority of the customer is for immediate execution. A market order instructs your broker to buy or sell futures contracts immediately at the market price, the best possible price for immediate execution. Market orders are the easiest way to enter or exit a market since the customer receives immediate execution - and must pay or receive whatever price is necessary for immediate execution.
When you place a market order, you are asking that order to be filled at the best available price immediately after receipt of the order. You might say, "Buy 2 December Swiss francs at the market." After the brokerage firm writes up this order, its rushed to the floor broker in the pit who executes it right away. Or, if you place an order online for one of the electronically traded contracts, your order is filled via a computer matching system.
<u>Example</u>: 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, or exit a short position. You could also use this order to Sell 1 May Corn at the market also and go Short or exit a long position.)
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.
<u>Example</u>: 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.
<u>Example</u>: My account # is 12345 and I want to Buy (or sell) 1 May Corn at the Market on Close.
Limit Orders
A limit order is like a market order with one exception, price takes the highest priority. For limit buy orders, the customer includes, along with the type and quantity of futures contracts to purchase, a maximum price to pay for the contracts. A customer will use a limit buy order if they desire to buy the futures contract, but want to pay no more than a specified price - the limit price.
If you place a limit order, you're asking the broker to fill the order at a specified price. If you say, "Buy 20 January Lumber at 395 even" ($395.00/thousand board feet), the floor broker can fill the order at 395.00 or any price lower, but not at a higher price. Likewise, if you say "Sell 10 May Lumber at 40 even" ($400.00/thousand board feet), the floor broker can fill the order at 400.00 or any price higher, but not at a lower price.
If the price you state in your limit order isn't reached during the trading session, your order won't be filled at all.
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 a Limit Order is only guaranteed for execution, 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 doesnt 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.
Stop Orders
A stop order, like a limit order, is only executed once a specific price is reached, but the motivation for the transaction is different. Whereas the limit order is typically used to enter into a futures position at a specific price, a stop order is usually used to exit or close a futures position at a specific price. Stop orders are most often used to close a position that is losing money, and are hence regarded as a useful risk management tool. A stop order to buy has a price that is above the market price and would be used by a customer having a short futures position. If prices rise so that loss accrues on the customer's short position, the stop loss provides a limit to the loss - as soon as prices rise to the stop price, the order is executed as a market order. Similarly, a stop order to sell has a price that is below the market price and would be used by a customer having a long futures position. If prices fall so that loss accrues on the customer's long position, the stop loss provides a limit to the loss - as soon as prices fall to the stop price, the order is executed, thereby closing out the initial long position.
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 or out 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).
<u>Examples:
</u>
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 dont 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 willing to Buy 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 and the next trade is at 286 , you may be filled at or around 286 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.
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 265 per bushel. You are obviously excited at your $750.00 profit (this profit is unrealized because you havent 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 260 per bushel. By doing so, you would tell your broker that you want to Sell 1 May Corn at 260 Stop. This means that if the market started reversing and got to 260, your stop loss would become a market order and you would be out at or near the 260 price. Therefore, you have locked in a profit of roughly 10 cents or $500.00.
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 cant 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 at that time. That may be 240, but dont be disappointed if your broker gives you 239 or worse.
Disclaimer: This Research Report Is Prepared 4 General Information. Opinions/Estimates Contained Herein R Subject 2 Change Without Notice. The Data/Information Herein Provided Is Believed 2 Be Reliable But IndiaMCX Advisory Services Does Not Warrant 4 Its Accuracy/Completene ss. IndiaMCX Advisory Services Or Any Of Its Employees R Not Liable 4 Any Action Taken By Any Party Based On The Above Information. This Material Is Not Intended As An Offer Or Solicitation 4 The Purchase Or Sale Of Any Financial Instrument. Special Note: Short-Term Trading May Results In Huge Profits in Commodity Futures; All Positional Traders Die's Its Our Personal View.
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