Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 107

would need to provide the broker with a contract symbol to buy and a contract symbol to sell. You could, of course, do this manually as two separate transactions, but you may have to pay more money on commission (spread orders generally have cheaper commissions than two separate orders as they may be considered as one order), and you may have problems filling one of them (each known as a leg) when your intention was to have both legs executed or none.

Order Type
There are several price-related specifications you can add to your order which are:

  • Market order - Here you specify to buy or sell contracts at the going rate when you place the order. This is the simplest of all orders and usually translates to immediate execution.
  • Limit order - With the limit order you can set the price at which you are willing to buy or sell. Your order will only execute at your specified price level or better. This is a better choice than using market orders as with market orders you put yourself at the mercy of the market. The disadvantage of a limit order is that it may not be filled if the contract price never reaches your limit price, even if it is within striking distance.
  • Stop order - Your order will execute at market price after the futures price reaches the level you have specified. Stop orders are used to protect against losses if the price of a contract begins to move unfavorably or to take a favorable position on a contract as its price begins to show upward momentum. For example, if you have ten corn contracts (at some delivery month) which closed at $255 yesterday and they are sliding down today, you may decide to put a sell stop order at $250 on the contracts. This means that if corn continues to drop in price, you would want to cut your losses at $250 and sell; otherwise you keep holding the contracts. By the same token, if you don't have any corn contracts but you see them sliding today, you may decide to put

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Table of Contents Copyright and Disclaimer Foreword Money
Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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