Types of commodity derivatives trading orders

Hướng dẫn giao dịch
09/12/2022

I. Market Order (MKT)

A market order is an order to buy or sell a contract at the best marketprice at the time of placing the order.

With a market order buy, the buy order will be executed at the lowest ask price (best bid price at the time of order execution because buyers always want to buy low).

With a market order sell, the sell order will be executed at the highest bid price (best sell price at the time of order matching because sellers always want to sell at a high).

Bid price: The highest bid price in the market at the moment. In the market at a time, there will be many investors placing pending buy orders at different prices.

Asking price:  The lowest asking price in the market at the moment. In the market at a time, there will be many investors placing pending sell orders at different prices.

Bid volume: is the volume to place a buy order at the bid price

Offer volume:  is the volume to place sell orders at the asking price.

Market order screen:

With market orders, the investor will not need to enter the price. At that time, the order will be understood as entering at the best price at the time of entry.

II. Limit order (LMT)

A limit order is an order to buy or sell a contract given by an investor to execute at the limit price or  better price.

Price Limit is the price limit that an investor can accept to make a transaction. The buy limit price is the highest buy price that an investor accepts to make a transaction. The sell limit price is the lowest selling price that an investor accepts to make a transaction.

Limit orders will execute trades at the limit price or better. With a buy limit order, the order will execute buy at the price equal to the limit price or a lower price (better price). With a sell limit order, the order will execute to sell at a price equal to the limit price or a  higher price  (better price).

Limit order placement screen:

For example:   The December 2019 corn contract is available:

Match price is 370

The asking price is 369

The asking price is 371

Investor A:

If a buy limit order is placed at 372, the order will be filled at 371. (372 is the limit he can buy, the lower the better, so the order will be filled at 371 first)

If you place a buy limit order at 370 with a volume of 3. This order will be in a pending state because investor A only accepts to buy at the highest price of 370, in the market at this time the lowest asking price is at 370. 371 should not match. At this time on the price list, the bid price will be displayed as 370 and the bid volume as 3. (The price list always shows the highest bid price. Before investor A places an order, the highest bid price is at 369. After investor A places an order, the highest bid price is now 370 and the corresponding bid volume is 3)

If you place a buy limit order at 367. This order will be in a pending state. When there is an offer price of 367 or less, this order can be filled.

– Same with sell limit order.

III. Stop Order (STP)

A stop order is a  conditional order. A conditional order is an order that will only be activated when the price meets the conditions of the order.

Place a stop order:

+    Buy direction:  Stop price > match price (on the price list) allows placing orders. If the stop price is ≤ matching price (on the price list), blocking does not allow placing orders.

+    Selling direction:  Stop price < match price (on the price list) allows placing orders. If the stop price is ≥ matching price (on the price list), blocking does not allow placing orders.

Stop orders are of two types: buy stop orders and sell stop orders

Buy stop order:

A stop order to buy always places a price higher than the current market price of the contract to buy. The condition to activate the order is when the market price ≥ stop price. At that time, the buy stop order will become a market buy order at that time.

Example: An investor is holding a short position in the December corn contract at 360 cents per bushel. The current market price is 365 cents per bushel. The investor is currently losing $250. The investor decides to cut losses if the price equals or exceeds 370 cents/ bushel. Investors will place a buy stop order at 370 cents/ bushel. When the market price reaches or exceeds 370, the buy stop order becomes a buy market order at that time.

Sell Stop Order:

A stop order to sell always places a price lower than the current market price of the contract to buy. The condition to activate the order is when the market price ≤ stop price. At that time, the sell stop order will become a market sell order at that time.

Example: An investor is holding a long position in the December corn contract at 360 cents per bushel. The current market price is 355 cents/ bushel. The investor is currently losing $250. The investor decides to cut losses if the price equals or exceeds 350 cents per bushel. Investors will place a buy stop order at 350 cents/ bushel. When the market price falls to or below 350, the sell stop order becomes a sell market order at that time.

Stop orders are commonly used to take profit and stop loss

Example of stop loss:  Investor A is holding a long position on 1 December 2019 Corn contract at 375. The market price is at 370. Thus, investor A is losing $250. Investor A wants to stop loss at 365. Investor A will place 1 sell stop order at stop price of 365. When the market price drops to ≤365, the stop order is activated as a market order at that time and will order matching principle of market orders.

Example of taking profit:  Investor A is holding a short position of 1 contract of Corn December 2019 at 375. The market price is 350. Investor A wants to take profit at 360. Investor A will place a buy stop order at the stop price of 360. When the market price is ≥ 360, the stop order will be activated as a market order at that time and will be executed according to the order matching principle of the market order.

Stop orders can also be used to open new Contracts

For example:  When analyzing corn in December 2019, investor A thinks that if the price surpasses 370 level, it will become an uptrend and will be a nice entry point, investor A places a buy stop order at the price. 370. When the market price is ≥370, the stop order is activated as a market order and the order is entered according to the principle of the market order.

Combination of stop and limit orders to set stop loss and take profit:

Investor A analyzed that the price of corn in December 2019 will increase. Investor A buys 1 contract at 370 and expects the price to go up to 380. Conversely, in the worst case, investor A will cut his loss at 360. In this case, Investor A will place 2 orders. as follows:

Place a sell limit order at 380

Place a sell stop order at 360

Investor B analyzes and thinks that the price of corn in December 2019 will decrease. Investor B sells 1 contract at 370 and expects the price to drop to 360. On the contrary, in the worst case, investor A will cut his loss at 380. In this case, Investor A will place 2 orders like after:

Place a buy limit order at price 360.

Place a buy stop order at 380

IV. Stop Limit Order

A stop-limit order is a combination of two types of orders, a limit order and a stop order. A stop limit order is an order that will be triggered when the price reaches the stop price. Then, unlike a stop order, instead of being triggered as a market order, a stop limit order will be triggered as a limit order. There are also 2 types of stop limit orders: buy limit stop orders and sell limit stop orders.

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