Order Types and How to Use Them

There are many order types that can be used on electronic markets, like the CME, such as market orders, limit orders, stop orders, bracket OCO, trailing stop, and multi-bracket.  Orders for futures contracts can be submitted to an exchange with different conditions specified, which can be referred to as order types.  These order types allow traders to create orders that meet the criteria they set for the trade, and to define how, and at what price the orders will be filled.  Traders need to be aware of and understand the type of market order they are submitting.

 

Market

This is the most common type of order.  A market order will generally execute at or near the current bid or ask prices in the marketplace during normal trading hours.  On the downside, you might not get the price you saw or were originally quoted, especially in fast-moving markets.  If you place your order before or after normal trading hours, consider the possibility that news events or other factors might impact the price of the contract when the market reopens. 

 

Limit 

This is an order to buy or sell at a designated price.  A limit to buy is placed below the current market price, while a limit to sell is placed above the current market price.  Limit orders allow the buyer to define the maximum purchase price for buying a future or the seller to define the minimum sales price for selling a future.  A limit price cannot be filled worse than the limit price but can be filled better.  Even though you may see the market touch a limit price several times, this does not guarantee a fill at that price.

For example, if the market is 10 offer and a trader enters a 13 bid, the trader will get filled at 10 if there are sell orders still on the offer.  The buy order could get filled at 10, 11, 12 or 13. 

 

Stop

Stop orders are price orders that turn into market orders once the designated price trades.  A stop order to buy is placed above the current market price and a stop order to sell is placed below the current market price.  A stop order is not guaranteed a specific execution price and may execute significantly away from its stop price.

A stop limit order is when an order becomes a limit order when the market price of the future reaches or passes a specific price.  This can provide more control of where the order will execute, however, this does not guarantee a fill.

 

Bracket OCO

A Bracket OCO order consists of three parts:

• Entry Order
  • This is the initial order to enter a trade (buy or sell)
• Profit Target Order
  • This is a limit order placed above the current market price, if you’re long (or below if you’re short), to take profit
• Stop Loss Order
  • This is a stop order placed below the current market price if you’re long (or above if you’re short), to limit potential losses.

When the entry order is filled, the Bracket OCO order automatically creates two conditional orders: The Profit Target Order and the Stop Loss Order.  If the market reaches either the profit target or the stop loss, the corresponding order is executed, and the other part of the Bracket OCO order is cancelled automatically.  Hence, “One-Cancels-the-Other”.

For example, you decide to enter a long position in crude oil futures at $70 per barrel.  The Bracket OCO setup would be:

• Entry Buy Order: $70 per barrel
• Profit Target Sell Limit Order: $75 per barrel
• Stop Loss Sell Stop Order: $68 per barrel

If the price of crude oil rises to $75 per barrel, your Profit Target order executes automatically, locking in profits.  If the price falls to $68 per barrel, your Stop Loss order executes automatically, limiting your losses.  Once either the Profit Target or Stop Loss is executed, the other order (either the Sell Limit or Sell Stop) is cancelled automatically.

Important:  StoneX Futures allows you to set these levels before you enter the initial position and you will see these orders on your Active Orders screen with a Stage of “Held”, these bracket orders have been received by our servers and will be placed once you enter the market.  This means if you lose your internet connection or have computer issues when your Bracket needs to go in, the servers will still place and manage the orders for you.  This is important because most other trading platforms rely on your computer to place these orders, which means there is more of a delay when they get placed and they will not go in at all if you are having computer issues. 

 

Trailing Stop

A trailing stop order is a dynamic type of stop order that adjusts automatically as the market price moves in your favor.  In helps lock in profits by trailing (following) the market price at a specified distance or percentage.

When you place a trailing stop order, you specify:

• Trigger Price
  • This is the price at which the trailing stop order becomes active. It’s typically set above the current market price for a long position (or below for a short position).
• Trailing Amount
  • This can be specified as a fixed price distance or a percentage. It determines how far behind the current market price the stop order will trail.

As the market price moves in your favor, the trailing stop order automatically adjusts. If the market price moves in the opposite direction by the specified trailing amount, the stop order is triggered and executed as a market order.

For example, you buy a futures contract at $100 per unit and set a trailing stop order with a trailing amount of $5.  The initial setup would be”

• Trigger Price: $100
• Trailing Amount $5

If the market price increases to $110, the trailing stop order moves up with it.  The stop order is now at $105 (trigger price of $110 minus trailing amount of $5).  If the market price then declines and hits $105, the trailing stop order is triggered and becomes a market sell order.

 

Multi Bracket

Much like Bracket OCO orders, this advanced order type allows a trader who trades with multiple contracts to set up to three different targets and three different Stops which can also be set to trail, should you choose.