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| One aspect of trading which appears to be absent in most trading courses and publications is simply, proper order placement. Although ironically, beginners may find this unimportant, it is probably responsible for the lack of success many people face. The primary reason for this is because there are a vast number of different orders which may be used for the same general objective and can unfortunately have drastic differences in the trading outcome. Sometimes a client may place a perfectly good order that may in fact be completely different than their intention, sometimes resulting in a very short trading career. The most frequently asked questions in this regard are:
'How do I place an order?' and 'What is a GTC order?' |
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| How do I place an order? |
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| There are 3 basic ways to buy or sell a market (with several variances). |
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| Market
Orders |
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| Limit
Orders |
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| Stop
Orders |
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| Market Orders |
| This order, which does not specify a price, will allow you to be filled at 'best price' available. There are benefits and drawbacks to this type of order.
For example if you would like to buy June Gold and the market price is 405, you might be filled at a close price, but are not guaranteed to be. In 'fast market' (or similar) conditions,
you may be filled at a point you have no interest in. |
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| Limit Orders |
| The limit order is an order to buy or sell at a designated price. Limit Orders to buy are placed below the current price while limit orders to sell are placed above the
current price. Even though you may see the market touch a limit price several times, this does not guarantee or earn the customer a fill at that price. In most instances, the market must trade
BETTER than the limit price for the customer to get a fill. If the June Gold is trading at 405, but you believe June Gold will come down to 402, you would like to place a buy limit order in June Gold at 402.
The downside however is you may not ever receive a fill. |
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| Stop Orders |
| The 3rd and final way to buy or sell a market is with a stop order.
A Buy stop is placed above the market and a Sell stop is placed below the
market; this is the opposite of a Limit order. If the June Gold is trading at 405 and major resistance lies at 407, then you would most likely want to buy June Gold when major resistance is broken, because you would be buying on strength. In this example, to receive the given objective, you would place a Buy stop above 407 to go long when resistance is taken out.
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| What is a GTC order? |
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| This is a big one! Perhaps the single biggest 'killer' of trading accounts! Making a mistake on this one can (and has many, many, many.. times) certainly mean the end of trading. All orders have 2 main classifications,
day orders and GTC (good til canceled) orders |
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| Day Orders |
| A day order will work for the day that you place it. Gold for example, which trades from 7:30 - 12:30, will work for this duration and automatically be canceled after 12:30. |
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| GTC Order (good til canceled or open orders) |
| A GTC is also called an Open order. A GTC order will continue to work until you get filled or until you cancel it. A GTC order will automatically be canceled when the contract expires. If the June Gold is trading at 405 and you would like to buy June Gold at 395 on a limit order, you have little chance of you being filled today, so you place it as a GTC order. This order will continue to work until the previous conditions are met. Why is this the cause for so many problems? One main reason is with stop orders. The stop order is designed (among other things) to keep a trader out of trouble. A trader long June Gold at 405 might place a stop to get him out at 399. In a few weeks there is a very large move and the market is at 387. Unfortunately the trader neglected to say "GTC" when he placed the order, so instead of a $600 loss, he has an $1800 loss! Another common occurrence is the client remembered to put in the GTC, but Gold moved in his favor and he sold his position for a profit. Well, he seemed to have forgotten to cancel the GTC stop loss, which was triggered 3 months later without being aware and eventually cost him a great deal of money. |
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I hope this brief introduction to order placement has been
helpful to you. Please feel free to contact me with your questions.
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John Garrity |
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| Garrity Trading is a d/b/a of Manduca Trading LLC, an independent introducing Broker registered with the CFTC and a member of the National Futures Association (NFA). Further information regarding the registration status of Manduca Trading and Garrity Trading can be reviewed in the NFA's BASIC system, which can be found at www.nfafutures.org/basicnet.
Past performance is not indicative of future results. There is a substantial risk involved in futures, futures options, and forex trading. Furthermore, Manduca Trading is not responsible for the accuracy of the information contained on linked sites. |
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Disclosure |
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