Types of Orders and How to Place them Properly

When placing an order with a broker (or online), it is very important to make sure you are placing your order properly. Correct placement of an order saves time and assures that your are doing what you are intending to do.

At HotSignals.com Inc. we are committed to educating our clients until they are comfortable and confident enough to place their own orders properly. For the majority that choose to trade on-line, they should have a firm understanding of the different order types and be comfortable with their use.

Proper order placement can help you get the fastest and best possible fill. It is the proper placement of an order that will help you get your order into the market as soon as possible.

Here is a listing of some of the most common order types. After a brief description of the order, an example will follow as to how you would use that particular order. Keep in mind that the orders are used in the same way if you go Long a market or Short a market.

You would just tailor the order to suit your current position. All orders are considered day orders and will expire the day you place it unless you specify that you want it to be a GTC order. (Good Till Canceled). If you ever have any questions as to a particular situation and the type of order that would be appropriate, please do not hesitate to contact one of the helpful HotSignals support team.

Market Order - The most common order. This order is used when you want to get the order executed immediately at the "market price". This order is used to enter a new position or to exit an existing position.

Example: My account # is 12345 and I want to Buy 5000 Google (GOOG) at the market. (This would enable you to go 'Long' at the market, or exit a short position. You could also use this order to Sell 1 May Corn at the market also and go 'Short' or exit a long position.)

Market on Open (MOO) As the name implies, this order will be executed on the market open within the opening range. This trade is used to enter a new trade, or exit an open trade.

Example: My account # is 12345 and I want to Buy (or sell) 5000 Google (GOOG) at the Market on Open.

Market on Close (MOC) As the name implies, this order will be executed on the market close. The fill price will be within the closing range which may, in some markets, be substantially different from the settlement price. This trade is used to enter a new trade, or exit an open trade.

Example: My account # is 12345 and I want to Buy (or sell) 5000 Google (GOOG) at the Market on Close.

Limit Order - This order is placed when you are looking to enter a new position, or to exit an open position at a specific price 'or better'. For example, if a person wants to buy 250 Haliburton shares and the current price is 79.13, and they are not willing to buy it any higher than 79.13l, (which may happen if you use a market order because while the order is being placed the market could trade higher by the time your order hits the market) you would place the order to Buy 250 Haliburton at 79.13 Limit. This tells the brokers that you are looking to purchase the share(s) at no higher than 79.13. The market may trade at 79.13 several times and you may still not be filled at your price. The reason is that in a Limit Order, you are only guaranteed to be executed if the market trades through the Limit price. If the low of the day is 79.13 per share, it is possible you were executed at that price, but more times than not, your broker will report to you that the trade was 'unable'. If you are in a position (either long or short) and are looking to exit a trade at a particular price you could also use a limit order. For example, if you are long Haliburton at 79.13 and want to take profit at 79.80, you would place your order to Sell 250 Haliburton at 79.80 Limit. If you are short Haliburton at 79.13 and want to take your profit when it drops to 78.60, you would place the order to Buy 250 Haliburton at 78.60 Limit. Once again, if the market just touches your Limit price (even 20 times) and doesn't penetrate it, you are not guaranteed a fill and should not be surprised when your broker advises you that you were not filled. Keep in mind that any order that you decide to place is taken as a day order (The order is canceled at the close of the market on the day you placed the order) unless you specify that you want the order to be working until you cancel it. This order is a GTC (Good till Canceled) order, which will be covered later.

Stop Order - This order becomes a 'market order' only when the specified price level is reached. This order is used to either enter a new trade or to exit an open trade. The Stop Order does not guarantee that you are going to get in or out at that exact price, because as stated, when the price is reached or penetrated, the order becomes a market order. A buy stop is placed above the market and a sell stop is placed below the market. Stop orders are commonly used to enter a market when the market is moving in that direction, protect profits, or to attempt to limit losses. (Keep in mind, while trying to limit losses, a stop loss order may not limit your loss to the amount intended) A stop order is considered a day order unless you specify that you want the order to be a GTC order (Good till Canceled)

Examples:

1. Entering a new position:
   
   You call your broker and ask him where Haliburton is trading. Your broker tells you it is at 79.13. You are interested in buying a block of shares, but you don't want to buy it until the market shows you some strength by getting up to 79.50. This would require you to place your order to Buy 100 Haliburton at 79.50 'on a Stop'. This order tells the people that you are willing to Buy 100 Haliburton if and only if the market goes up to that price and not before. When the market trades at 79.55, the order becomes a market order and you will get the next best price. If the market is trading at 79.48 and the next trade is at 79.60 you may be filled at or around 79.60 not the 79.50 that you had as an order. Remember, on a stop order, you are filled at the market once it has traded at or through the specified price.
2. To Protect Profits
   
   You call your broker because you are 'Long' 100 Halburton at 79.50. Your broker tells you that the current price is 80.45. You are obviously excited at your profit (this profit is unrealized because you haven't sold it yet) and want to protect some of it in the event that the market reverses. You decide to place a Stop Order at 79.60. By doing so, you would tell your broker that you want to Sell 100 Haliburton at 80.00 Stop. This means that if the market started reversing and got to 80.00, your stop loss would become a market order and you would be out at or near the 80.00 price. Therefore, you have locked in a profit of roughly 50 cents and can chalk that up as a good trade. (The above is an example and does not take into effect the obvious cost of commissions and fees. You should plan on deducting these costs, which range depending on your broker and account type..)
3. Attempting to Limit Losses
   
   You call your broker because you are 'Long' 100 Haliburton at 79.13. Your broker tells you that the current price is 78.80. You are not happy because you realize you are down 33 cents on the trade. You are not willing to risk more than $500 dollars on the trade so you decide to place a Stop Loss Order with your broker. You advise him to Sell 100 Haliburton at 78.60 Stop. Again, this does not guarantee you can't lose more than $500 because as stated before, when the market trades at or through 78.60, the stop loss order becomes a market order and you are filled at the best price available in the market at that time. That may be 78.60, but don't be disappointed if your broker gives you 78.58 or worse.

Market If Touched (MIT) This order is similar to a stop order in that it is executed only if the price reaches a specified level. Like a stop order, when the market trades at or through the price, your order becomes a market order. The difference between the stop order and an MIT order is that an MIT order to sell is placed above the current market price, and an MIT order to buy is placed below the current market price. *Not all exchanges accept MIT orders. Please check with your broker before placing this type of order.

Good Till Canceled (GTC) These orders are also known as 'open orders'. This type of order is always working on the floor of the exchange unless it is executed, canceled by the client, or replaced by another order, or the contract expires. When you place an order with a broker, it is assumed a day order and will expire at the close of that market's trading day. If you wish to have an order working beyond the day you place it, you must specify GTC.

Fill Or Kill (FOK) This order is a limit order that is sent to the pit/exchange to be executed immediately and if the order is unable to be filled right away, it is canceled.

Spread Order - A simple spread order involves two positions, one long and one short. They are taken in the same commodity with different months (calendar spread) or in closely related commodities. Prices of the two futures contracts therefore tend to go up and down together, and gains on one side of the spread are offset by losses on the other. The spreaders goal is to profit from a change in the difference between the two futures prices. The trader is virtually unconcerned whether the entire price structures moves up or down, just so long as the futures contract he bought goes up more (or down less) than the futures contract he sold. There are also many spread possibilities available in the option markets including straddles, strangles, ratio spreads, sell-side spreads and more that we will not go into here but would be more than happy to explain to anyone interested in such strategies. Spread trading may not be less risky than an outright long or short position.

Placing your order properly will enable you to save time and reduce the possibility of making and error, which can cost you money. There are those occasions when filled orders coming in from the floor will be slow in coming. The markets may be trading fast or experiencing heavy volume. This will slow down the reporting of fills since the floor brokers main priority is to enter new trades and report the fills back when things are not so busy. If you ever have a question about a particular fill price or anything else regarding your account activity, you should check your online account or phone your broker to confirm.

I hope you have found this guide to placing orders helpful. If there is anything that you still have questions on feel free to contact us

The information presented in this site is not investment advice and is for informational purposes only. Investment in futures involves a high degree of risk, your investment may fall as well as rise, you may lose all your original investment and you may also have to pay more on the original amount invested. Consult your broker or advisor prior to making any investment decisions. Past or simulated performance is not a guide to future performance.