Futures Order Types

Futures Order Types

Orders for futures contracts can be submitted to an exchange with different conditions specified. The conditions are referred to as order types. These conditions allow traders to create orders that meet the criteria they set for the trade, and to define how, and at what, price the orders will be filled.

There are many order types that can be submitted through your broker, the most common being market orders, limit orders and stop orders.

Market Order

Market orders can be broken down into two types: a market limit order and a market order with protection.

A market limit order is executed at the best possible price available in the market. If the market limit order can only be partially filled, the order becomes a limit order and the remaining quantity remains on the order book at the specified limit price.

A market order with protection prevents orders from being filled at extreme prices. Market orders with protection are filled within a pre-defined range of prices, referred to as the protected range. For bid orders, protection points are added to the current best offer price to calculate the protection price limit. For offer orders, protection points are subtracted from the current best bid price.

When trading a liquid market with narrow bid-ask spreads, like the E-mini S&P 500, the trader generally gets filled quickly at the current price in the market, which is reflected in their trading platform.

In a market with a wide bid-ask spread and low volume, the trader might find their order gets filled for a higher price if they are buying, or a lower price if they are selling.

Traders need to be aware and understand the type of market order they are submitting.

Limit Order

Limit orders allow the buyer to define the maximum purchase price for buying a future or the seller to define the minimum sale price for selling a future. A limit price cannot be filled worse than the limit price but can be filled better.

For example, if the market is 12 offer and a trader enters a 15 bid, the trader will get filled at 12 if there are sell orders still on the offer. The buy order could get filled at 12,13,14 or 15.

In a fast-moving market, the order may not be filled because the price keeps moving away from the price of their order.

Stop Order

The stop order type is an order which, when accepted, does not immediately go on the book, but must be triggered by a trade in the market at the price level submitted with the order. There are two types of stop orders: stop-limit, which goes on the book as a limit order when activated, and the stop with protection, which goes on the book as a market order.

For example, the market is trading at 11 and the trader has a sell stop-limit order at 8 to exit their long position. If the trigger price of 8 is traded, the stop order will become a limit order to sell at 8. The order remains on the order book at a limit order at 8.

A stop order with protection prevents stop orders from being executed at extreme prices. A stop order with protection is activated when the market trades at or through the stop trigger price and can only be executed within the protection range limit.

In the previous example, a sell stop order with protection was entered at 8 with 2 protection points. If triggered at 8, the stop order will attempt to sell at 8, but sell as low as 6.

Time Limits

In addition to price levels, orders placed through your broker have a time limit that they are active.

Typically, futures orders are submitted as day orders. This means that the order is only active until the end of that day’s trading session, if the order does not get filled.

Traders can also place orders that are valid until cancelled by the trader. These orders are typically called Good Till Cancel (GTC) orders and will remain active until the trader cancels the order or the order is filled.

Traders can also exit multi-contract positions at different prices. Traders can exit part of their position at one price and the remainder of their position at a different price.

If you have any additional questions, feel free to contact us or leave a comment. 

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DISCLAIMER: There is a substantial risk of loss in trading commodity futures and options products. Losses in excess of your initial investment may occur. Past performance is not necessarily indicative of future results. Please contact your account representative with concerns or questions.