After completing your analysis and deciding whether or not to trade a certain market, there are 3 important parts to each trade, namely the entry, maintaining the trade, and the exit. A lot of traders will tell you that one or the other is more important, but I think every aspect of the trade should be approached with the same level of dedication and discipline. A good trading plan should cover the entire trade from start to finish. In this lesson we will focus on the entry. When you place a trade you can either buy or sell a certain contract. When you buy a contract, you are "long" the market and expect prices to go up. If prices rise, then you make money. Also, When you sell a contract, you are "short" the market and expect prices to drop, and when they do, you make money. Going long is buying, and going short is selling. However, if you are long and the market goes down, you lose money. The same goes for going short and prices rise. The important thing is you want to be on the right side of the market: long when prices are rising and short when they are falling. Technical Analysis will give you the tools to aid you in your trading plan, and though they are not 100%, they can be very accurate. Along with good risk management skills, you can become successful at trading. The language of trading is very important, and if you are placing your orders by phone, a good broker will help you to understand which type of order you would like to place. However, in the end it's completely YOUR responsibility to communicate your order correctly. More and more people recently are trading through online trading platforms. Here you don't have the luxury of talking to someone, so you must educate yourself first on the types of orders available to you. The following are some of the common order types available: (It is important to note that not all brokers accept all of the following order types, and you should check with your broker to see what types of orders you can use.) Market Order: A market order does not specify a price. It's executed at the best possible price currently available. This order is executed immediately at the "market price" and is the quickest way in or out of the market. This means that when you place a market order, as soon as it reaches the floor, it will be filled at whatever the current price is. Note that in fast or very thinly traded futures markets it could be very different. The more you know about a particular market you are trading, the better! Stop Order: Stop orders become market orders and are then executed only when the market trades at a specified price. Stop orders can be used to minimize a loss on a long or short position, to protect a profit on an existing long position or short position, or to initiate a new long or short position. A "buy stop" order is placed above the current price; a "sell stop" order is placed below the market. Stop Close Only Order: The stop close only order will only be executed if the market touches the stop price during the close of trading. This could have an adverse effect during fast moving markets in the last few minutes of trading, and cause the order to be filled at an undesirable price. However, it usually used to exit a trade and can protect the trader from getting stopped out of wild price fluctuations during the trading session. Limit Order: A limit order is an order to buy or sell at a specified price. Buy limit orders are placed below the current price, and sell limit orders are placed above the current or “market” price. Though the market may touch your limit price, it doesn’t guarantee your order will be filled. In most cases the market must pass through your order for it to get filled. Market if Touched (MIT) Order: A "market if touched" order specifies a price, but MIT orders become market orders once the market reaches or passes through the limit price. This order may be executed at, above or below the originally specified price; "MIT buy" orders are placed below the current price, while "MIT sell" orders are placed above the current price. Though an MIT order is similar to a limit order, but the execution may be at, above, or below the originally specified price. 
Market on Close (MOC) order: A MOC order is executed during the final minutes of trading at the best possible price. Market on Opening (MOO) Order: A MOO order is executed during the opening range of trading at the best possible price obtainable within the opening range. Or Better (OB) Order: This order requires the broker to secure the best possible price; think of it as a market order with a limit. If an order is not designated with an OB and the current market price is much better than specified in the order, the floor broker may question the runner to determine whether the order should have been a stop order. In this case, the order may be returned for clarification, which could delay execution of the order and could change the results of the fill. Spread Order: Placing two or more opposite orders in an attempt to gain more price control by maintaining counterbalancing long and short positions in different contracts or in different months within the same contract. It’s also an order to buy and sell two different contracts at a specified differential. Traders use a spread to gain arbitrage, the simultaneous purchase and sale of contracts that seeks to benefit from price variations. Fill or Kill Order: This order instructs the floor broker to buy or sell at your specified price, or to cancel it immediately if it’s unable to be filled. If Done Order: An If Done order is actually placing 2 instructions on the same order. If the first order gets filled (Done), then and only then does the second order get placed automatically. This order type is popular in currency trading. One Cancels the Other (OCO) Order: This is also a combination of 2 instructions placed on the same order. This instructs the broker that once one side of the order is filled, the remaining side of the order should be canceled. As both instructions are placed on the same order, this eliminates the possibility of both orders getting filled. At the time you place your orders you will need to designate the length of time each order will be in place. Day Order: Day orders expire if they cannot be executed (e.g., the market price does not reach or pass through the limit/stop price of the order) on the day they were placed. Open (GTC) Order: Open orders continue to exist until they are executed. If an open order cannot be executed on the day it is placed (e.g., because the market price does not reach or pass through the limit/stop price of the order) it will be filled on the next trading day or stay open until it can be filled, is canceled or the contract expires. Telling the broker "GTC" (Good Till Cancelled) will also let them know that you want the order to continue working until it is executed, replaced or cancelled. In currency trading, you can specify an order to be in effect for one week as well. Trading platforms will have the choices listed, and it’s your job to be sure to select the correct length of time you wish the order to be in place. Many platforms will default to GTC, but if you don’t specific a time to a broker on the phone they might consider it a day order. When placing GTC orders you must keep a close watch on all your open orders. This is easily done if you are using a trading platform, but if you phone in your orders be sure to write them down and check them everyday. If you don’t they may get filled weeks later, and it might not be what you want at the time. Make sure that when you place a stop loss order it’s a GTC order, or the next day you won’t have a stop loss in place at all, and this mistake could become very costly! |
