The Numa Guide
to
FUTURES & OPTIONS ORDERS
A brief guide to the different types of orders possible with futures and options
You might be interested to try our experimental Order-Help. This is a small program to help investors learn how to formulate futures orders.
There is a far greater range of orders possible with futures and options rather than for stocks. This is not surprising if one makes a distinction between stocks and futures by saying one invests in the former and trades the latter. The trading of futures requires far greater control in the execution of orders, rather than the common buy-and-hold strategy of stock investments.
NOTES
We have listed a fairly comprehensive range of futures orders here; however, exchanges and brokers will have their own list of orders that they accept. Hence, always check first with the broker, what type of orders they will accept, and what the exchange accepts.
Despite the wide range of orders possible, in practice only a few are commonly used. We have indicated in the table index below (by marking in bold) the most common types of order.
GIVING ORDERS - a checklist
[This list may seem too trivial to be included, however, in the heat of the moment...]
When placing a futures or options order, it is important to remember to include the following
- the Exchange where the order is to be placed (many commodities trade on more than one exchange)
- Buy/Sell
- Quantity - how many contracts (lots)
- Contract - name of the contract (if an option include also strike and put/call)
- Month - delivery month of the contract
- Price - instructions regarding price execution (see below)
- Time - instructions regarding the timing of execution (see below)
GUIDE TO FUTURES AND OPTIONS ORDERS
- day
- The order remains good only for the duration of the trading day that it is entered. It is cancelled at the end of the trading day, if not executed. All orders are usually assumed to be day orders, unless other-wise specified.
[example: buy 5 June S&P500 at 575.00 limit, good for the day]
- good till cancelled (GTC)
- The order remains in effect until executed, explicitly cancelled or the contract expires.
[example: sell 2 June S&P500 at 565.00 limit, GTC]
- open
- (same as GTC above)
- good through [date]
- The order remains in effect untill the close of trading on the date specified. Variations include: good for the week, or good for the month.
- specified time
- The order must be executed at a certain specified time, or at intervals though the trading day.
[example: sell 4 Dec Bunds at market at 10:15am]
A combination of this and a day order is the off-at-a-specific time order, where orders remain in effect during the day up to the specified time, if not executed by then, they are cancelled.
[example: buy 2 Aug Gold at 395 limit, good 'til 11:00am London time]
- immediate or cancel (IOC)
- The order must be executed immediately in whole or part as soon as it is entered. Any unexecuted part is automatically cancelled.
[example: buy 6 May Silver limit 550.8 immediate or cancel]
- fill-or-kill (FOK)
- This is similar to the above order, but here the whole order must be executed immediately, if it can not the order is cancelled.
[example: sell 14 Jan Wheat limit 429, FOK]
- on-the-opening
- The order must be executed during the opening of trading. (This opening of trading is commonly defined by exchanges to be either a short period of time, or the period taken to establish an opening price range.)
Note: the interpretation of this order - and the below - will be affected by exchange definitions of opening and closing trading periods)
[example: buy 6 Dec T-Bond at opening]
- on-the-close
- The order must be executed during the closing of trading. (See above).
Note: The on-open and on-close orders are very popular as many trading systems are tested with these prces, and thus many computer systems use these orders.
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- market
- The most common type of order: it must be executed when entered at the best price prevailing in the market.
[example: sell 5 Sep FTSE100 at market]
- limit
- An order specifying a maximum buying price or a minimum selling price.
Hence, with a limit order to:
buy - the specified limit must be below the current market price, or to
sell - the specified limit must be above the current market price
[example: buy 4 Sep Nikkei225 limit 19200]
- discretion
- An extension of a limit order, where the broker is permitted to execute the order at a specified price differential from the limit.
- scale
- An order to buy or sell two or more contracts at specified price intervals.
[example: buy 1 March DAX at 2143.0 and one each 1 point down for 3]
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- market-if-touched (MIT)
- A combination of the above market and limit orders, whereby the order becomes a market order when the options or futures reach a specified price.
Hence, with an MIT order to:
buy - the specified price must be below the current market price, and to
sell - the specified price must be above the current market price
Unlike limit orders, these will always be executed - if the price is touched - as they become market orders at that time.
[example: sell 2 October CAC40 at 1809, market-if-touched]
- stop
- One of the most useful orders. Like the MIT order above, the order becomes a market order when the options or futures reaches a certain price.
However, in the reverse of MIT orders, with stop orders to:
buy - the specified price must be above the current market price, and to
sell - the specified price must be below the current market price
Stop orders are particularly useful for protecting positions in case of sudden adverse market movement. They can also be useful for opening new positions when a key price threshold is breached.
[example: buy 2 November OMX at 1384.50, stop]
- stop limit
- An extension of the above stop order, but where the activated order becomes a limit order instead of a market order.
[example: buy 2 November OMX at 1384.50 stop, limit 1385.50]
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This can include a wide range of possible orders, including;
- 2 orders entered at the same time, with the cancellation of one order dependent on the execution of the other. These are sometimes called one-cancels-the-other (OCO) order.
- an order to buy/sell a contract in one month when prices reach a specified price in another month, or even another contract.
Some of the most common uses of combination orders are for implementing spreads.
- inter-market spread - purchase and sale of the same commodity on different exchanges
- intra-commodity - purchase and sale of the same commodity but with different delivery months
- inter-commodity spread - purchase of one commodity and sale of another different, but related, commodity.
In these orders, execution of part of the order can be made dependent on execution of other parts, but brokers will accept no responsibility for simultaneous or exact price execution. These orders can employ any features of those outlined elsewhere here (e.g. for time, price control).
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- all-or-none
- The whole order must be executed or not at all.
[example: sell 20 Sep Hang Seng, all-or-none]
- not held
- The broker is given discretion as to time and price of order execution and is not held responsible for unsatisfactory execution.
[example: sell 8 Sep Gas Oil limit 148.75, not held]
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- cancel
- A straight cancel to remove any unexexcuted part of a previously entered order.
- if-nothing-done-cancel
- Cancel a previously entered order if no part has been executed, otherwise leave the order to stand.
- cancel-former-order
- Replaces a previously entered order with new instructions.
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