Limit Orders & Market Orders

This week’s series of articles is about types of orders you can use when trading eMini stock index futures.

An article on types of orders may seem trite to expert traders.

But for beginners and others accustomed to safer endeavors (such as operating a mine sweeper), the type of orders necessary for trading e-mini index futures profitably is bewildering.

Limit Order

This specifies the price at which you want to buy or to sell.

I sometimes use these to open a new position in S&P futures and often use these to take profits on S&P futures.

For example, “Buy at 1375.00 limit” means you want to buy for 1375.00 or less.

If the price at the moment you enter the order is more than the amount specified in the limit order (e.g. more than 1375.00) then the order does not get filled until/unless prices drop down to the limit price (e.g. 1375.00).

But if the price at the moment you enter the order is less than the amount specified in the limit order (e.g. more than 1375.00) then the order gets filled immediately at whatever is the “ask” price at that time.

Market Order

“Market Order” means:

(a) if you’re selling, you’re willing to sell at the current bid price at the time of your order;

(b) if you’re buying, you’re willing to pay the current offer (sometimes called the "ask") price at the time of your order.

Literature from the field of stock trading often warn against using market orders. That’s because back in the bad old days when people instead of computers filled orders, some of the people involved would “game” your order.

For example, your broker or people at the trading exchange would hold your order while they buy-and-sell stocks for themselves or other customers. At the end of the day or when they feel they can't hold your order any longer without getting caught, those cheaters would give you the worst price they have during the time period during which they hold your order! They assign the good prices to themselves and their favorite customers.

The eMini S&P futures are completely computer traded and do not involve people unless you give your order to a live broker. The cheating by people involved in stock trading can’t occur in computer based direct-to-the-exchange trading. This honesty is a main attraction of the S&P futures.

Whatever "cheating" goes on occur in different ways, a subject matter for another article (or book!).

The eMini S&P futures during regular trading hours (9:30 a.m. ET to 4:15 p.m. ET) are highly liquid. The difference between the bid and ask price is almost always only 0.25 between those times.

Therefore, I often use Market Orders when trading eMini S&P futures.

Even on highly volatile days with heavy volume (e.g. FOMC announcement at 2:15 p.m. ET), the spread is fairly tight. The problem on those heavy volume occasions is that prices move extremely fast so that you might end up with a fill far from where you thought you might get filled.

Tomorrow, I’ll write about how you can ensure that you don’t get filled on a market order at a price too far removed from the price you expect...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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