When trading Futures contracts it is a good idea to know which types of orders the Exchange that you are trading on will accept. In the United States we have two Futures Exchanges that we can trade on. You would think that both Exchanges would accept the same types of orders. That is not the case and it is up to you to know which ones they do accept.
First, let’s discuss the different types of orders we can use:
- Limit Order
- Stop Market
- Stop Limit
- Market if Touched (MIT)
- Market on Open (MOO)
- Market on Close (MOC)
A limit order allows the trader to specify a specific price and will not have any slippage. The risk of using this order is they may not get filled if there are too many orders in the que at the same price they are trying to get. These are usually located under the current price for a buy and over the current price for a sell.
A stop market order allows a trader to specify a price to place an order that, once the market touches their price, it instantly becomes a market order. The risk of using this order is there may be some slippage and the actual fill price might not be the same price the trader put the order in for. A buy stop is located above the current price and a sell stop is located under the current price.
A stop limit order is the same as a stop market order, but the trader is limiting the amount of slippage they are willing to accept by assigning that value when they place the order using a stop limit. These orders are generally used by traders who have a breakout trading strategy where they are trading momentum. The risk in using a stop limit order is that if the market does go quickly through your order it might not get filled. Therefore, stop limits must never be used for protective stops.
A market order is when a trader wants to be in or out of the market immediately. They are guaranteed to get filled, but the risk is they don’t have a guarantee of the price they will receive. The majority of trading volume during the day uses this type of order.
A market if touched order is just how it sounds. If a trader were trying to sell at a price over the current market they would usually use a limit order; but if they are concerned about missing the trade, which could happen if there are too many sellers at your same price, then the trader would use the market if touched order. By using market if touched, once the market touches your price it immediately becomes a market order. The same as a stop market, but you can actually use it to sell above the current price or buy below the current price.
A market on open order is an order given to the exchange to be executed on the next sessions open during the first 30 seconds of trading. Your order is a market order that will be filled at some price during the open range of the market. The risk is obviously that you don’t know exactly where it will be filled, but you know you will be in at some price.
A market on close order is given to the exchange to be executed during the last 30 seconds of the trading session. During this period, your market order is released to the electronic platform as a market order and can be filled at any of the prices traded during the last 30 seconds of the day.
Usually the last two types of orders are used by algorithm or non-discretionary traders who get automated buy and sell signals instructing them to buy or sell on the close or next session’s open.
As you can see, there are numerous types of orders that can be used to trade Futures. You should contact your broker to find out which orders are accepted by which Exchanges.
For example, I found out the hard way trading Cocoa on the InterContinental Exchange. I always attach a bracket order to my trades. I also always use Good til Cancel (GTC) orders. While trading Cocoa one day I wished to use a market order as the price was turning and going in my direction. As soon as I placed the order I received a rejected order notice on my screen. I thought that was odd so I tried it again. You guessed it, same message.
I contacted the broker I use for this account and was informed that the ICE does not accept a market order with a GTC bracket order attached to it. I had always used stops or limit orders in the past and had no problems.
Lesson learned, but I should have discovered that myself before trying to trade the Cocoa market with a market order that I had not used before.
As a trader, there is so much to learn about trading other than where to buy or sell. I encourage you to learn as much as possible about any market you are going to trade.
“Successful people are always looking for opportunities to help others. Unsuccessful people are always asking, “What’s in it for me?” Brian Tracy