Chapter 5: Orders

Types of Orders

1. Market Orders

• Definition: No price specified; executed at the best available price at the time.
• Customer specifies: Futures contract and size (e.g., 5, 10, 100 contracts).
• Execution: Assumed to be always executed.

2. Limit Orders

• Definition: Price specified; executed only at the specified price or better.
• Buy Limit Orders: Executed at the specified price or lower.
  • Example: Buy crude at $40 or less; willing to pay $39.90.
• Sell Limit Orders: Executed at the specified price or higher.
  • Example: Sell crude at $41 or more.
• Execution: Not guaranteed; depends on market conditions.

3. Stop Orders

• Definition: Contingency order triggered by specific price.
• Types:
  • Sell Stop: Protect a long position; activated when price drops to stop price.
    • Example: Long at $40, sell stop at $37.
  • Buy Stop: Protect a short position; activated when price rises to stop price.
    • Example: Short at $40, buy stop at $42.
• Execution: Becomes a market order once triggered.

4. Stop Limit Orders

• Definition: Similar to stop orders but become limit orders once activated.
• Execution: May not be executed if price conditions are not met.

5. Market If Touched (MIT) Orders

• Definition: Entered on same side as limit orders; become market orders when price is touched.
• Types:
  • Sell MIT: Above the market; activated when price is touched or exceeded.
  • Buy MIT: Below the market; activated when price is touched or lower.
• Execution: Becomes a market order for best available price.

Execution and Activation

• Above Market:
  • Sell Limit and Sell MIT.
  • Buy Stop: Activated by trade or bid above stop price.
• Below Market:
  • Buy Limit and Buy MIT.
  • Sell Stop: Activated by trade or offer below stop price.

Special Order Types

Not Held Orders

• Definition: Broker discretion on price and time of execution.
• Doesn't require: Discretionary account.

One Cancels Other Orders

• Definition: Two alternative orders; execution of one cancels the other.
• Purpose: Prevent double fills.

Give Up Orders

• Definition: Orders given up to another FCM.
• Purpose: Share commissions, manage order flow.

Switch Orders (Liquidate and Roll)

• Definition: Liquidate near month, reestablish in distant month.
• Purpose: Avoid delivery.

Allocation of Bunched Orders

• Definition: Large orders allocated post-execution by CTAs.
• Requirement: Must be fair, equitable, and non-preferential.

Next Steps

• Focus: Futures margin rules and calculating margin requirements.