subject: Types Of Futures Trading Orders [print this page] A combination of a buy and a sell order usually forms a single future trade, where a buy order is meant to enter the trade and sell order to exit. Futures' trading is made up of combinations of such separate orders.
A trade entered with a buy order must be exited with a sell order. If you foresee rise in prices, the basic and simple futures trade is to enter the trade with a buy order and exit with a sell order and in the case of falling prices, you can enter the trade with a sell order and exit with a buy order.
Forms of Orders:
Market Order : Market orders are placed to buy or sell a contract at the existing best price in the market. Most market orders get filled in active markets but at times with a deviation in the intended price. You can use such orders, when you are determined to process your order even at a slight variation in price.
Limit Order : These orders are placed to trade at a specific price or at a better price. Ex: If you place a limit order to sell a contract for $ 2.547, your order will be filled only at $2.547 or a higher price. Hence, depending on the movement of prices in the market, limit orders may sometimes be left unfilled. Such orders are used to get a reasonable price though with an uncertainty of being unfilled.
Stop Order : Similar to market orders, stop orders intend to buy or sell at best available price, however, these orders are processed only when the market reaches a specific price. For Ex: The market price is $ 1.897 and you place a buy stop order with a price of $1.892. Your stop order is converted to a regular market order when the market price reaches $1.892. A stop order is activated only when the market trades at the stop price or passes the price.
Stop Limit Order : A combination of a stop and limit order, these orders are processed only when the market touches the specified price. However, such orders get filled only at the chosen or a better price in line to a limit order.
Having knowledge of forms of orders immensely helps you to effectively undertake futures trading.
