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The different types of trading orders

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Page Summary:
With Spread Betting there are many different orders clients can use to get in and out of the markets as well as take profits and losses. They're not hard to understand but don't get involved with trading until you do. This page offers a detailed guide.
Orders - What are they - how to use them
Note : Although this guide is on the Spread Betting part of the website the different types of Orders follow the same principles for all the markets, whether CFDs, Options, Stocks or Futures etc.
With spread betting there are several orders that one can use to conduct business. While all of them are simple, some of them can seem complex and involved if you're just starting out. It's therefore critical that -
  1. You fully understand what the different orders are
  2. How and where to use them
  3. Their individual nuances, and
  4. Their individual advantages and disadvantages
Summary - It's impossible to make profits over time via spread betting without having a solid grasp of all the different orders and how to use them.
What 'Long' and 'Short' means
Spread bet orders are often multi-dimensional. This means the same order can be used in reverse depending on whether you're 'long' or 'short' the market. But what do these 2 terms mean?
  • Long - You have bought the market, expecting prices to rise. For example -
  • Long £2 a point of the daily FTSE at 4205 - if the market rises you'll make money and if it falls you'll lose
  • Short - You have sold short the market, expecting prices to fall in value. For example -
  • Short £2 a point of the daily FTSE at 4252 - if the market falls you'll make money and lose if it rises
Some common market terminology
Let's first look at some common market terminology that will be used in the examples below.
  • 'Filled' - An order that has been completed, if not it's deemed 'not filled'
  • 'Work' or 'working order' - An order that hasn't been 'filled', ie it's still in force
  • 'Cover' - To get out of a current position. You might for example be long the FTSE and want to cover the position if the market rallies. Or perhaps you're short and want to cover the position if it goes lower. Cover therefore means the opposite of your current position, if long cover means to sell, if short cover means to buy
The different types of orders

Market orders

This is the most common type of order. It is a trade to either open a new position (long or short) or to liquidate, or cover, a current position (long or short). For example -

  • The daily FTSE is quoted at 4227 - 4229
  • A market buy order would be transacted at 4229
  • A market sell order would be transacted at 4227

Market buy orders can be used to both enter and exit a position. For example, you buy the FTSE at 4229 via a market order, several hours later the quote is 4250-4252 and you use a market sell order to take your profit.

Market orders - you might not trade at the current bid-offer

Market buy orders trade at the current market price. So there is a risk you won't trade at the price you see quoted, because the quote is always moving and it takes time to execute an order, maybe only 0.5 of a second but that's still time.

It's therefore possible to use a market order to buy when you see a quote of 4227 - 4229 on your screen but actually buy at 4231. This often happens when the markets are volatile and moving quickly. Conversely, if quoted 4227 - 4229 it's possible to buy at 4225 because as the order was being executed the market dropped.

Make sure you understand how market orders are filled in relation to the quote you see on the screen. Don't get too worked up about this though as more often than not you'll trade at the screen price.

Limit orders

A limit order can be used to accomplish 4 different goals -

  1. To enter a new long position
  2. To take a profit on a long position
  3. To enter a new short position
  4. To take a profit on a short position

Limit orders are always above or below the current price. For example -

  • Assume the FTSE is trading at 4230 - 4232
  • A limit buy order would be at 4230 or below, perhaps buy £2 at 4220
  • The same order could be used to take a profit on a current short position - perhaps you shorted the FTSE at 4230 and wanted to leave an order in the market to cover the trade at 4200 - the limit order would therefore be to buy £2 of the FTSE at 4200

Important - Limit buy orders differ from market orders because there is no guarantee the order will be filled. For example, if you were short the FTSE at 4230, and placed a limit buy order at 4200 but the market only traded down to 4205. The 4200 limit buy would not therefore be filled.

It is also important to note that a limit order might not be filled even if the low of the day is the same as the limit price.

For example, again assume you're short the FTSE at 4230 and you place a limit buy order at 4200. The market may well trade down to 4200 but not through the level. For the order to be guaranteed filled the market would have to trade at 4199.5 or below.

Limit Sell orders

A limit sell order works the same way but of course in reverse.

  • Assume the FTSE is trading at 4230 - 4232
  • A limit sell order would be at any level above 4232, perhaps sell £2 at 4250

The same order could be used to take a profit on a current long position - perhaps you went long the FTSE at 4210 and wanted to leave a limit sell order in the market place to take a profit at 4250.

And like a limit buy order there's a risk that even if the market trades up to your sell level of 4250 you won't trade. So for the order to be guaranteed filled the market would have to trade to at least 4250.5.

Market on Close Order (MOC)

This is a common order because many spread betters like to liquidate their positions at the close of business and go home what they called flat, ie have no positions.

The order is simple to understand. A market-on-close order is a market buy or market sell order that is executed right on the close of business.

For example -

  • You go long the FTSE in the morning, the market rallies, and you want to take a profit when the market closes
  • Yes, you could sell whenever you want using a market order but prefer to sell on the close so assuming you were long £2 of the FTSE the order would be sell £2 FTSE MOC

An MOC order can also be used to settle a short position, for example -

  • You short the FTSE in the morning, the market declines throughout the rest of the day, and you want to cover the short position on the close - assuming you were short £2 of the FTSE the order would be buy £2 FTSE MOC

MOC orders are not used to only take profits, they can be used to settle a losing trade as well. For example -

  • You are long the £3 of the FTSE at 4230 but the market drifts lower all day
  • You don't want to take a losing trade overnight so put in the following order - sell £3 FTSE MOC

It is important to get straight before entering an MOC order when does the market in question officially close. Spread bet brokers quote many of their markets 24 hours a day so theoretically they never shut (apart from Friday night).

However, there will always be an official closing price. So if you don't know when this is, call your broker's helpline to get confirmation.

One final point - don't assume you'll always trade at the official closing price

If you're selling the FTSE on the close the settlement price might be 4240 but your order could be filled at say 4238, 4241 or even 4244. This is because MOC orders are usually filled in the final 1 minute of trading and that's often volatile with the price moving all over the place. This is something to be aware of.

Good Till Cancelled Orders (GTCs)

A Good Till Cancelled order, commonly called a GTC is self explanatory, the order will continue to work until it's cancelled. For example -

  • You might have gone long the £2 of the FTSE at 4220 and want to take a profit 200 points higher at 4420
  • The MOC would be sell £2 of the FTSE at 4420 GTC
  • Assume the market rallies over the next several days the order would be filled when the market breached 4420
  • This might take 5 days, 7 days or even 20 days, whatever the case the order never gets cancelled until you personally cancel it

Some people have got into trouble over the years by not keeping an eye on their GTCs, ie they forget to cancel them when they're not needed any more. So it's always a good idea if you use GTCs to review them every day. Think of it as good housekeeping.

Good For The Day Order

A 'good for the day' order is any order that is good for just that day. There is no need to cancel one of these as they're automatically cancelled, if not filled, at the close of business. But again, with 24 hour markets it's important to find out when these styles of orders are actually cancelled.

One Cancels Other Order (OCO)

An OCO order consists of 2 separate orders and although it sounds a mouthful it's simple to understand. So where and how might an OCO order be used -

  • Assume you're long £2 of the FTSE at 4230
  • You want to sell and take profits if the market rallies to 4260 or take a loss if it falls below 4215
  • The order would therefore be -

to sell £2 FTSE at 4260 OCO (one-cancels-other) sell £2 FTSE at 4215 stop loss

If the market rallies and you sell at 4260 the stop loss order at 4215 is automatically cancelled. Conversely, if the market moves lower and you sell at 4215 the limit sell order at 4260 is automatically cancelled.

OCO - MOC Orders

This is a three-way order and again might sound complicated but in reality it's a combination of -

  • A limit order
  • A stop loss order, and
  • A market on close (MOC) order

Whichever one is filled first the other 2 orders are automatically cancelled. For example -

  • You are long £2 of the FTSE at 4230
  • You want to sell and take profits if the market rallies to 4260 or take a loss if it falls below 4215
  • But if the neither of those orders are filled the market on close order comes into play
  • Assume the FTSE neither rallies to 4260 nor declines to 4215 and closes at 4240 - the £2 FTSE position would be sold on the close of business
Part orders - They add to flexibility

Just because you're long £6 of the FTSE doesn't mean you have to sell £6 to take a profit or loss.

Many traders will split their positions up so if the market rallies they might take a profit of 20 points on £2 of the position, sell another £2 if the market rallies 40 points and then MOC (Market on Close, see above) the final £2.

Spread bets, and in turn the different orders are all about flexibility so use it. The great thing is that because most orders are conducted through an online dealing platform all it ever takes is a few clicks of the mouse.

LearnMoney comment:
If you don't understand, and I mean fully understand, what the individual orders listed above are, how they work and how to correctly use them, don't risk large amounts of capital via spread betting.

Successful speculation is hard enough without getting confused about which order to use, or even how they are supposed to work.

This is why I said in the introduction to spread betting that it is important for all traders to learn the game before committing proper money. Learning is as much about how the different orders work as it is about where the markets are likely to trade.

The good news though is that the orders listed above are not complex to either understand or use. True, they can take some time to sink in but work hard at this and you shouldn't have any problems.

Finally, never forget that too much money in the past has been lost by those new to spread betting who lost not because they got the direction of the market wrong, but because they didn't know how to correctly conduct their business - So be smart, take your time learning this game.

WARNING! - Spread Bet Broker Advice

There are good spread bet brokers and there are bad ones.

Having a good broker won't guarantee you profits but a bad broker will probably lead to losses as a combination of their gamesmanship and suspect software takes its financial toll.

So who do I recommend?

Simple, the 2 brokers I personally use for my own spread betting (and I've used them for years) -

FREE Report : How to Learn Spread Betting and Prosper
How to build the all-important trading experience
Where to get trading help and advice
Which broker to use and why
Simple 2 month training plan to follow
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