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 …
|