There are different types of orders that a client can give to his
broker, they are: -
Market order
This is an order to buy or sell at the prevailing price. By
definition, when a commodity is bought or sold at the market, the floor broker
has an order to fill immediately “at the best price”, but in reality it is “the
next price”
Limit order
With a limit order, the floor broker is prevented from paying more
than the limit on a sell order.
Stop order
Stop order or “stops” are used in 2 ways. The most common is to
cut loss on a trade, which is not working in ones favour. A stop is an order,
which becomes market order to buy or sell at the prevailing price only if and
after the market touches the stop price. A ‘sell stop’ is placed under the
market and a ‘buy stop’ above the market.
Stops can also be used to initiate positions. They are used by
momentum traders who want to enter market moving in a certain direction.
E.g. a trader believes that, if gold prices trade above the
psychologically significant’ $400 mark, it will move higher. He places a key
stop at a $401. And also can place a sell stop at $396.
Stop limit order
It is an order where a client can place a stop order at a
particular level with a limit beyond which the market would not be ‘chased’
Sell on stop @2637, limit 35’
An order of this nature will not force the market away from the
limit; but is in danger of not getting filled at all.
Delivery months
Every futures contract has standardized months, which are
authorized by the exchange for trading. E.g. wheat is traded for delivery in
March, May, July, September, and December.
Price Determination
The price is determined by demand and supply, or in other words
buyers and sellers. If the buyers are more aggressive then the prices go up. If
the sellers are larger the prices go down.
The bid and the offer
The only part of a contract that is negotiated in the pit is the
price. Everything else is standardized.
Therefore, the trader in
the bid needs to communicate only 3 things
1. Whether he wishes to buy or sell
2. The number of contracts he wishes to buy or sell
3. The price
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