Limit Orders: Futures Orders Type
Author: Beau Penaranda
A limit order basically tells your broker that you want a certain price or better, or don’t fill me order at all. For instance, let’s look at the current March 2009 Live Cattle prices are at 86.25. Let’s also say you are looking to buy or go long this contract but feel that the market can and will retrace a bit before heading higher. Looking at your charts, you look for the nearest support area and place an order to Buy one March 2009 Live Cattle @ 86.00 or better.
The term "or better" indicates that this is a Limit Order. You can also say "Buy one March 09 Live Cattle at 86.00 limit"
This tells your broker that you want to wait till the market retraces back to 86.00 and then place my order to the floor. Once it is at the floor, you are telling the floor broker that you do not want any price other than 86.00 or better. Or better in this case can mean 85.975 or 85.95.
Let’s look at the advantages of using Limit Orders:
- more disciplined way to enter orders
- better fills and less slippage
- can be placed in fast markets
In short, limit orders are one of the safest ways to enter the marketplace. It gives specific direction as to what price you are willing to either buy/sell that specific contract and the broker must fill it at that price or give you a better price.
Here’s some disadvantages to using Limit Orders:
- market may not fill order since it is asking for a specific price
- at little more complicated than placing a market order, but not much
There are more, but those are the main one’s that I can think of off the top of my head.
In short, I used them a lot. It can give you a calculated entry point if you are using technical analysis and chart reading. It is also much safer in faster markets and you will enjoy better fills overall than say a market order.
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