Orders

Question 1

One month ago, a customer sold three January copper futures at $2.3270. If the customer wants to take profits if the market price falls to $2.2000, he will enter:

Answer 1

Buy limit order

If he enters a buy limit order at $2.2000, he will buy only if the price falls to that price. Buy stop orders are activated and filled if the price rises (i.e., the customer will lose). Stop orders are typically used to protect a customer against losses, not to take profits. Sell orders are not a good choice, since the customer needs to buy in order to cover (eliminate) his short position.

Question 2

Which is used to protect against profits and which to protect against loses?

Stop orders vs Limit orders

Answer 2

Stop orders are typically used to protect a customer against losses

Limit orders are typically used to take profits

Question 3

How do stop orders work?

Answer 3

Stop orders become market orders when activated (market hits the stop price) and are executed immediately at the best available price.

Question 4

T or F - A trader who is long July corn at $1.55 places a stop order to sell at $1.50. This insures that he will not lose more than 5 cents a bushel.

Answer 4

False

A stop order to sell is an order that is placed below the current market price. It is entered to protect profits or minimize losses. Once the contract trades at or below the price designated in the order it becomes a market order at next best price.

In this example the stop order to sell is placed at 1.50 which means if the price drops to 1.50 or less it will be executed immediatley at next best price. Which means it could be a sell order under 1.50

Question 5

What is a Stop order to Sell?

Answer 5

An order placed below the current market price. It is entered to protect profits or minimize losses. Once the contract trades at or below the price designated in the order it becomes a market order at next best price.

Question 6

T or F - A customer enters an order to buy a contract at $4.00. The contract trades at this price but the broker is unable to buy the contract because another broker buys it before him. The customer is entitled to an execution under these circumstances because the market reached the limit price.

Answer 6

False - this is a limit order in which the broker was unable to execute the order bc another broker got the price first.

The broker unable to execute CANNOT be held responsible for this

Question 7

An FCM receiving an order from a customer must time-stamp the order….

Answer 7

Within one minute of receiving/entering it

Question 8

What is a Market Order?

Answer 8

NO price specified. Its buy or sell at best price at the time. Basically certain

Question 9

What is a Limit Order?

Answer 9

Have a price specified and customer only wants to buy/sell at a set price or better.

Buy limit: set price or lower

Sell limit: set price or higher

Execution is NOT certain

Question 10

What is a Stop order

What is a sell/but stop and when activated

Answer 10

Type of contingency order. Its contingent on a price being hit (triggered) BEFORE it becomes an active order

The order is activated by the market trading at or thru the stop price

Sell Stop order - will activate with a trade or offer at or below the stop price

Buy stop order - will activate with a trade or bid at or above the stop price

Question 11

Sell Stop vs Buy stop orders are commonly used for what?

Answer 11

Sell Stop - to protect a long

Buy stop - to protect a short

Question 12

Once triggered a regular stop order becomes what for execution?

Answer 12

A Market Order for immediate execution

Question 13

What is a stop limit order? and when does it execute

Answer 13

A stop limit order is still triggered at the stop, but will only be executed at your specified price or better. Thus its NOT guaranteed execution if triggered

Question 14

Market if Touched order (MIT)

Answer 14

Entered on the same side of the market as limit order, but activated or triggered like stop orders. Basically to take profits or get into a position

Sell MIT order are placed ABOVE the market. and activated when futures trade or bid at or above MIT

Buy MIT orders are placed below the market and activiated when futures trade or offered at or below MIT

Once activiated MIT ordered become market order

Question 15

What is a Sell MIT order and how placed/executed?

Answer 15

Sell MIT order are placed ABOVE the market. and activated when futures trade or bid at or above MIT

Question 16

What is a buy MIT order and how placed/executed?

Answer 16

Buy MIT orders are placed below the market and activated when futures trade or offered at or below MIT

Question 17

WHats the diff between a limit order and MIT?

Answer 17

MIT - Can be executed at a worse price that given in order. Bc once activiated its becomes a market order

Limit - Cannot be executed at a worse price. Once a limit is triggered if the next price trading is not better, it wont be filled

Question 18

Whats a good analogy for remembering order types?

Answer 18

SLoBS vs BLeSS.

SL O BS
________

BL E SS

Slobs are above the market price and Bless is below.

Sell Limit+MIT is above market

Buy Stop+Buy Stop Limit above market

Buy Limit +Buy MIT below market

Sell Stop+SellStop Limit below market

Question 19

What are STOP order typically used for? What types?

Answer 19

Stops are used for existing positions.

So if your Long and you want to protect a position you enter a sell stop/limit below the market

If your short you might place a buy stop (or stop limit) above market to protect

Question 20

Not Held Order (NH)

Answer 20

Broker is given discretion as to time and price. Broker is given authority as to whether to take the position as well. CANNOT be held responsible for any action it takes or fails to take

Question 21

Give-UP Order

Answer 21

One FCM gives up orders to another FCM to protect the client anonymity. FCM share commission

Question 22

Switch Order

Answer 22

Liquidate and roll. Rolling into futures. mainly for speculators before first notice ay

Question 23

Allocation of bunched orders

Answer 23

Doesn’t need to be specified by the CTA at time of order entry. Thats bc the CTA might have multiple accounts it will later allocate to. Must be done before EOD. must be fair and equitable

Question 24

T or F - A customer whose account is serviced on a nondiscretionary basis, gives a Registered Commodity Representative an order to sell corn around $3.30 to $3.31. Additional documentation is required for the order to be accepted?

Answer 24

True - The customer is entering a discretionary order by giving the RCR the authority to execute a trade without a firm price. Without written discretionary authorization, the RCR cannot accept the order to liquidate the position around $3.30. If the instructions were to sell at the market, or at a price of $3.31, the order could be accepted.

Question 25

T or F - A stop order to sell may only be entered to offset a long position.

Answer 25

False - A stop order to sell is usually entered to liquidate a long position, but it could also be used to establish a new short position.

For example, a speculator might place a stop order to sell at a price below the current market if he anticipates a further price decline once a contract trades through the specified price.