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Defining Futures Orders

Futures orders have a simple definition but a wide variety of possibilities. Not unlike options trading in the stock market, futures orders cover a number of different trading scenarios.


  1. Market Orders This is the most basic of futures orders. It is the same for either buying or selling; once the order reaches the trading pit, it is executed for the best price available.

  2. Limit Orders A limit order is a futures order used for buying or selling when a certain price is reached. A limit order to buy is placed below the current market price and a limit order to sell is placed above the current market price. When the target price is reached, a market order is executed to buy or sell based on the limit order.

  3. Stop Orders Stop orders are used in futures markets as protective techniques for either buying or selling. Three purposes of stop orders are:

    1. Reducing losses on long or short positions
    2. Opening new long or short positions
    3. Protecting a profit on an existing long or short position

A buy stop order is placed above the market and a sell stop order is implemented below the market.


  1. Market If Touched This futures order is the direct opposite of a stop order. Sell Market If Touched orders are only executed if the price is above the market while but buy Market If Touched orders are only executed if the target price is below the market when implemented. An MIT order is usually used to enter the market or initiate a trade. In commodities trading, 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.

  2. Stop Limit Order - A stop limit order is a futures order that 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 a regular stop order. The second part of the order specifies a limit price. This indicates that once your stop is triggered, you do not wish to be filled beyond the limit price. Stop limit orders should usually not be used in commodity trading when trying to exit a position.

  3. Market On Opening This is a futures order that is to be executed within the opening range of trading.

  4. Market On Close This is the opposite of a Market On Opening. This futures order is given to execute a trade in the closing seconds at the best available price.

  5. Fill Or Kill - Fill Or Kills are futures orders used by customers wishing an immediate fill, but at a specified price. A floor broker will likely bid the order two or three times and immediately return either a fill or an unable.

  6. Spread An investor is likely to use a Spread to take advantage of the differences in two prices. For this futures order, a long and short position will both be taken hoping to exploit the difference in price. For example, buy 15 October Corn Futures , sell 15 November Corn Futures plus 2 to the November sell side.  This spread order means to sell the spread when the November corn is 2 points higher than the October corn.

Conclusion
In addition to these futures orders, there are additional orders that some but not all markets recognize.  It is important to discuss your futures orders with your broker so that you are aware of the available orders.  If you are trading oil futures your broker can tell you whether you can implement Spreads or if Fill Or Kill is unavailable in your particular market.  Knowing the terms involved with futures orders will help you to be a more successful trader in the futures market.

 

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