Commodities Trading Order Types

As with any forms of speculating, when trading commodities there are no guarantees. You can make or lose a lot of money very swiftly. There are however methods used by professionals, often unknown to the average trader, that can help to reduce the risk and limit the amount of loss.

To be successful, knowledge of the different kinds of orders that can be executed is needed: Market, Limit, Stop and their variations.

Market Orders
The most commonly used orders are Market orders. They are the simplest – the broker attempts to fill whatever order is placed at whatever is the going price. Even such liberal requirements don’t ensure the trade will get executed quickly.

Occasionally some orders may take a day, or longer, to fill when liquidity is low. Active commodities and futures markets usually ensure market orders are filled within minutes, if not seconds, though.

Variation on market orders include MOC (Market On Close), MOO (Market On Opening), MIT (Market If Touched) and others.

As the names indicate, market on opening is an order to execute at the best possible price during opening, and correspondingly for a market on close order, at closing.

Market If Touched orders are similar to limit orders (see below). In this instance though, orders are filled once the allocated price is reached and continue to be filled even if the price moves away from the limit.

Limit Orders
Next in simplicity come limit orders, which are a request to buy or sell at a designated price. Generally this entails buy orders being placed below the current market price and sell orders above.

The order may remain unfilled with this type of order, depending on the designated price and general market conditions. There are thousands of trades being executed every second so even if the market reaches the limit price there is no guarantee that yours will get executed.

Stop Order
Short for 'stop loss', Stop orders are used to limit potential losses on a long or short position. A buy stop order is usually requested for an above market price, sell stop orders below market. The stop order becomes a market order once the allocated stop price is reached, and is executed accordingly.

There are several variations: stop limit, stop close and others.

Stop limit orders list two prices. One price is listed as an ordinary stop order, the second acts to form a limit price. Once the stop is reached, the limit requirement is effectively cancelled.

Stop close orders are used only near the close of trading. The order is attempted to be executed only if the market reaches the stop price at this time. This can help to protect traders from intraday fluctuations in a typically volatile commodities market.

OCO (One Cancels The Other)
This is actually two orders combined, requesting that floor traders attempt to fill it until one side or the other is executed.

Fill Or Kill
This order requires the floor broker to bid, or offer, up to three times at an allocated price. The order is cancelled in the event no suitable trade is executed.

Brokers, while obliged to obtain the best price possible for their clients, can never guarantee a trade. Most orders can be executed as desired by the client due to a high level of activity and liquidity in the market, but there is no guarantee.

         

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