Brought to you by the Premier Futures and Commodity Trading Site on the 'Net – InsideTheMarket.com 

Before engaging in any trading strategy, it is crucial to be familiar with the different types of orders that are available for futures and commodity trades.  Regardless of how profitable your trading strategy may be, without proper knowledge and use of orders, you will have a very difficult time achieving your profit goals. Whether you are placing your futures order online, through a trading platform, or with the assistance of a broker, the following components or your trade order must me known:

• whether it is to buy or sell
• the quantity (# of contracts that you wish to trade)
• the delivery month along with the year if necessary (ie. December of 2009)
• the underlying commodity (S&P 500 futures, corn, gold, etc)
• the exchange if the commodity is sold on more than 1 exchange (CME, CBOT, etc)
• the type of order(ie. market order or a limit order, any contingencies, etc.)

Buying or selling a contract is either an opening or closing transaction, because, except in special cases, you cannot be both long and short in the same futures contract at the same exchange in the same account. Thus, it is possible to be long in Chicago wheat and short in Kansas City wheat, but it is not generally permissible to be long and short in Kansas City wheat in the same futures account. Assuming that you are flat with no current positions in a certain market, your initial position will be decided by whether you first buy or sell a futures contract.  For example, if you first buy a contract, you open a position in that contract, being long. When you subsequently sell that contract, then your sale will be treated as an offsetting, or closing transaction. However, if you had sold the contract first, then you would be short in the contract, and your sale would be considered an opening transaction. Thus, whether the purchase or sale of a futures contract is an opening or closing transaction depends on what contracts are already in the account. When the exchange receives your order, it doesn’t know (nor does it care) whether it is an opening or closing transaction, but it matters for you, since it will determine your position in that futures market.

Although there are several types of futures order types, we will simply address the most common types of orders in the sections below.

Market Order

The market order is the most frequently used order. It is a good order to use once you have made a decision about opening or closing a position, and wish to take that position immediately. A market order is executed at the best possible price obtainable at the time the order reaches the trading pit.

Limit Order

A limit order is an order to buy or sell at a specific and/or designated price. Limit Orders to buy are placed below the market while limit orders to sell are placed above the market. Since the market may never get high enough or low enough to trigger a limit order, it is possible that you may miss the market if you choose to use a limit order. Even though you may see the market touch a limit price several times, this does not guarantee that your order will be filled at that price.  More often than not, the market must move at least one tick below your limit price for buy orders (one tick above your limit price for sell orders) to guarantee that your order gets filled at your limit price

• When buying, if the limit order price is lower than (below) the current market price, it is a Buy Limit.
  • Example:  The S&P 500 futures are trading at 950.00, Buy 1 SPZ9 at 949.00 on a Limit (or better fill at 949.00 or lower). Your order can only be filled at the stated price (949.00) or lower (better).
• When selling, if the limit order price is higher than (above) the current market price, it is a Sell Limit.
  • Example:  The S&P 500 futures are trading at 950.00, Sell 1 SPZ9 at 951.00 on a Limit (or better fill at 951.00 or higher). Your order can only be filled at the stated price (951) or higher (better).

Stop Order

Stop orders can be used for three purposes:

• to minimize a loss on a long or short position
• to protect a profit on an existing long or short position
• 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.

• When buying, if the order price is higher than (above) the current market price, it is a Buy Stop.

Example:  The S&P 500 futures are trading at 950.00, Buy 1 SPZ9 at 951.00 on a Stop. Your order can only be filled at the Market, after the Market trades (or is "offered") at 951 or higher.

• When selling, if the order price is lower than (below) the current market price, it is a Sell Stop.

Example:  The S&P 500 futures are trading at 950.00, Sell 1 SPZ9 at 949.00 on a Stop. Your order can only be filled at the Market, after the Market trades (or is "bid") at 949.00 or lower.

Stop Limit Order

A stop limit order lists two prices and is an attempt to gain more control over the price at which your stop is 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, rather than it becoming a market order, 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, as you are not guaranteed to be filled in the event that the market moves against you. If you do not specify a limit price, then the stop price and the limit price are meant to be identical.

Market If Touched Order (MIT)

MITs are the opposite of stop orders. 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. An MIT order is similar to a limit order in that a specific price is placed on the order. However, an MIT order becomes a market order once the limit price is touched or passed through. An execution may be at, above, or below the originally specified price. An MIT order will not be executed if the market fails to touch the MIT specified price.

Day Order

With most brokers, all orders are considered “Day” orders unless otherwise specified.  This means that your order will be automatically be cancelled at the close of the trading day if it has not been executed or cancelled by the close.

Good Until Cancelled Order (GTC)

Good Till Cancelled (or Open Order) are used in conjunction with a Limit or Stop order. Your GTC order will remain valid and worked until either you cancel your order, it is filled, or the contract expires.

GTC Order Does Not Cancel Automatically!

• As an example, you are long 1 SPZ9 and have a GTC order to sell 1 SPZ9 @ 950.00 Stop. You decide to sell your 1 long SPZ9 on a Market order. Your GTC order must be canceled or you will sell (short) 1 SPZ9if the market trades (or is "bid") at 950.00 or lower, resulting in a new short position.

If an order is not designated as Good Till Cancelled, it is a Day Order and will expire at the end of the current trading session unless filled or canceled prior to the close.

Personally, my trading strategy relies heavily on support and resistance price breaks in a particular market.  Therefore, I will generally use buy stops (when going long) to enter a trade, and sell limit orders to exit my trade with a profit.  I also use sell stops (when long) to control my losses if the market goes against me, or to lock in trailing profits as the market moves in my direction.  These order types are simply my preference for my trading style.  There are several other types of order that can be used, depending on your preference or trading strategy.  Other types of futures orders include:

• Stop Close
• Market On Close (MOC)
• Market On Open (MOO)
• Spread
• One Cancels Other (OCO)
• Or Better
• Fill Or Kill
• Enter and Cancel

For more information on these orders, please visit http://cftc.gov/educationcenter/glossary/index.htm , or feel free to contact me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

If you are not sure how to enter an order, ask your broker! Not all exchanges accept all types of orders. 

This article was brought to you by the Premier Futures and Commodity Trading Site on the 'Net – InsideTheMarket.com

Written by Christopher Conti of Conti Capital Investments