Commodity Trading Online by Farr Financial Commodities Futures Brokers
 
Commodity trading by Farr Financial

Commodity Futures Brokers, Farr Financial

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How To Place Commodity Trades
 
  
How To Place Your Orders At The Trade Desk.


The trade desk phone number is 1 (800) 676-1562

"I have a futures order.  This is John Smith, my account number is 12345.  Buy 3 May Corn, 240 stop."

The above message conveys all the essential parts of a futures order. If at first it looks a little foreign to you, don’t worry, you’re not alone.

There are sound, practical reasons for presenting your orders in a particular way. First, this process is the best one we know of in terms of preventing errors on the parts of both the customer and the order specialist.

Second, with a solid understanding of order types and how to place them, you can increase your ability to act and react in varying market conditions.

We’ll go step-by-step through the elements of order placement:

Specify the type of order
The first thing the order specialist will need to know is the type of order you will be placing. Specify if it is a futures or options order. 

Since we will automatically place your order as a day order, you will need to tell us at this time if you’ll be placing a GTC (Good ‘Til Cancelled) order.

Day Orders: Day orders are good until the end of the current trading session. If, after the floor broker receives your instructions, your order is unable to be filled, it is cancelled immediately after the market closes. It will not be resubmitted to the filling broker for any subsequent trading sessions. 

Good ‘Til Cancelled (GTC) Orders: GTC orders will remain in effect until: 1) you cancel the order; 2) the order is filled; or 3) the contract expires. 

2) Identify yourself
We need to know your name and account number. 

3) Indicate if you are buying or selling.

4) Quantity
How many contracts will you be trading on this order? Always express quantity in terms of the number of contracts you want traded.

5) Month, and if necessary, Year
Always indicate the delivery month you will be trading. Specify the year if you will be trading a contract that is not deliverable until the next calendar year or beyond.

6) Commodity, and if necessary, the exchange
Many commodities have contracts traded at two or more exchanges. If you will not be trading on the primary exchange, please let us know at which exchange you want it traded.

7) State your price
If not a market order, let us know at which price you wish your order to be triggered.

8) Type of order
At this point, we need to know exactly what type of order you’ll be placing - a market order, limit order, a stop, MIT, etc. It’s very important that you state the order type at the end of your order. A table of the acceptable order types for various markets is included at the end of this guide.

Repeating back an order:
Your order specialist will repeat your order back to you. Listen carefully to the order when it is repeated back to you; the order will be placed exactly as it is repeated to you. This is the time to make any corrections and if necessary, ask your order specialist to repeat the order back to you a second or third time.
 
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Order Types
  
1) Market order

Use this type of order when you want to make your trade at the best available price upon receipt by the floor broker. Do not specify a price; rather, say "at the market". To place such an order, a trader might say: "I have a futures order. This is John Smith, account #12345. Buy 3 May Corn at the Market."

2) Limit order

Use this type of order when you want to be filled only at a specified price or better. A limit buy order is placed at or below the current market price, while a limit sell order is placed at or above the current price. Within certain caveats, you are guaranteed a fill if the market trades through your price. If the market merely trades at your price, you are not guaranteed a fill.

Occasionally, a customer will place a limit order when the market is currently trading at or through their limit price. This type of order is called an "Or Better" order because the designated price will be flagged with an "OB" to signal the floor broker that your order, which might look suspiciously like a stop, is in fact, a limit order. Chances are, your order specialist will want to confirm the same thing with you. Place this order exactly as you would any limit order adding "or better" after the price.

3) Market if Touched (MIT) order

Use this order to make sure you get filled if the market hits your price. It becomes a market order when the market hits your specified price. As with all markets orders, you will be filled at the best prevailing price when your MIT is elected; thus, you will be filled, although not necessarily at your stipulated price. For example, if May Corn was trading at 230, John Smith would say: "I have a futures order. This is John Smith, account #12345. Sell 3 May Corn at 232 MIT."

4) Stop order

Stop orders can be used for three purposes: 

a. to minimize a loss on a long or short position, 
b. to protect a profit on an existing long or short position, or 
c. to initiate a new long or short position. 

A buy stop order is placed above the market and a sell stop order is placed below the market. Once the stop price is touched, the order is treated like a market order and will be filled at the best possible price. 

An order which becomes a market order when trading occurs at or through your specified price. An acceptable buy stop is placed above the current price and is elected when the market trades or is bid at or above your stop price. A sell stop is appropriately placed below the current market and becomes a market order when the market trades or is offered at or below your price.

The stop order is often referred to as a "stop loss" referring to an acknowledgement that you are wrong on the market direction and want to get out of the market before it moves any further against you. While this analogy can help you remember to place buy stops above and sell stops below the current price, the term "stop loss" is actually something of a misnomer. 

Although stops have been used to exit a position when it has reached a certain point against you, the stop is also commonly used to protect profits or even enter new positions. With the May Corn at 230, John Smith may place a stop order like this: "I have a futures order. This is John Smith, account #12345. Sell 3 May Corn at 224 ½ stop."

5) Stop Close Only order

Use this order when you want your stop to be filled only if elected in the closing range. Since this order can only be filled during the closing range, the price you stipulate may be anywhere in relation to the current market. It is similar to a stop order with the only difference being that it must be elected and filled during the closing range (usually the last 30-60 seconds trading).

6) Stop with Limit order (Stop Limit)

Use this order when you want to give the floor broker a limit as to how far through your stop he may fill your order. When you place this order, two prices must be stipulated: the stop price and the limit price. When your stop is elected, the broker will fill your order if it is possible to do so without exceeding your limit price. If the broker is unable to do so, the limit portion of your order goes into effect. Now, the market must turn around and surpass your limit price in order to be filled, just like a regular limit order. For example: "I have a futures order. This is John Smith, account #123-12345. Buy 5 June Canadian Dollar at 7250 stop, 7260 limit."

7) Market On Close order ( MOC )

Use this order if you want to be filled at the market at any time during the close range (usually the last 30-60 seconds of trading). To place this type of order, just say "MOC" or "Market On Close" instead of a price.

8) Fill or Kill Order

This order instructs the floor broker to immediately execute your order at a specified price or to cancel it if unable to do so. The price should be near enough to the current market price so as to make immediate execution a realistic possibility. When the floor broker receives your order, he will immediately bid (if you are buying) or offer (if you are selling) your price at least three times. 

If a trade occurs, you will be notified right away of your fill. If no trade occurs, the order is cancelled (killed) on the spot and the broker's obligation to that order ends. To place such an order when the market is trading at 7210, you would instruct the order specialist to "Sell 5 June Canadian Dollar at 7210 Fill or Kill".

9) Order Cancels Order ( OCO )

This order actually gives two alternative instructions in which the execution of either one automatically cancels the other. Buy and/or sell instructions cannot be combined. For example, suppose you are long three June Canadian Dollar at 7200. You want to get out of the market if it declines to 7145, but what you'd really like is to take profits at 7240. 
 
Therefore, you might place your order to "Sell 3 June Canadian Dollar at 7240 OCO 7145 stop". The broker will fill whichever portion of your order he is able to first, simultaneously canceling the other portion. Thus, if the market rises and the 7240 limit portion of your order is filled first, the stop is automatically cancelled. If your stop is elected before your limit can be executed, the broker will fill your stop and cancel your limit. 

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Placing an Options Order

You'll follow essentially the same procedure when you're placing an options order – but you'll include some additional information that's specific to options.

"I have an options order. This is John Smith, account #12345. Buy 8 December Gold 320 calls at 1.20 to open a position."

Here's the information to include on an options order:
1) Identify that it is an options order; specify if it is a GTC order
2) Identify yourself: your name and account number
3) Indicate if you are buying or selling
4) Quantity
5) Month, and if necessary, the Year
6) Strike Price
7) Commodity, and if necessary, the exchange
8) Call or Put
9) Price
10) Indicate if you are opening the position (it is a new position) or if you are closing (off setting) an existing position
 
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Spread Orders

A Spread order is the simultaneous purchase and sale of the same or related commodities.
Premium – The difference of prices in points between the months or commodities being spread (this excludes special ratio spreads)

EXAMPLE:

July Corn 245 ½ 
December Corn 235 
Premium equals = 10 ½  (the premium or difference is 245 1/2  minus 235) 

The premium almost always goes on the side of the higher priced month or commodity of the spread.

For example, if you wish to buy the July Corn and Sell the December Corn contract and want to do the spread with the difference between the months of no more than 10 ½, you would place the order as follows: "I have a futures spread order. This is John Smith, account #123-12345, buy 5 July Corn and sell 5 December Corn at a premium of 10 ½ on the buy side." Of course, you could also do the spread at the market: "Buy 5 July Corn and Sell 5 December Corn at the market."

Remember: Most spread brokers will not accept stops on spreads. Also, spread markets are traded separately from the regular markets. Floor spread brokers bid and offer the spread premiums, which in some cases vary widely from the difference between the last quotes in the individual markets. It is wise to ask for the bid/ask on spreads, especially in less liquid markets.

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Cancel a Working Order

You may cancel any order which has not yet been filled, in other words you may for some reason want to cancel a working order.  There are two methods in which to cancel an order. The method you select will vary depending on whether you want to cancel it outright or merely change it.

Straight Cancel: If you have a working order and don't want it anymore, you would choose this method. You are telling the floor broker not to work the order anymore – you do not want it filled. 
If your order has not been filled by the time your straight cancel request gets to the pit, the broker will pull the order from his deck and return it as cancelled. If your instruction to straight cancel reaches the floor broker after the order has already been filled, it will be returned as "Too Late To Cancel" (TLTC) and you will be notified of your fill. 

To place a straight cancel, give your name and account number and tell the order specialist that you want to straight cancel an order. Specify if it is a day or GTC order and give the ticket number and the market you are trading. Example: "This is John Smith, Account #12345. Straight cancel GTC ticket  #4423 in the Hogs."

Cancel Replace: Use this method if you want to change an order. The new order must be for the same commodity and delivery month, and the buy/sell instruction must remain the same. You can, however, change from GTC to Day and vice-versa, as well as modify the quantity, price, and/or type of order.

To cancel replace an order, give your name and account number and tell the order specialist that you want to cancel replace an order. Specify it is a day or GTC order and give the ticket number and the market you are trading. Example: "This is John Smith, account  number #12345. Cancel Replace GTC ticket #4423 in the Hogs."  Once the order specialist has located the original order, give the new instructions. Mr. Smith in this example would continue: "Replace that with a GTC order to sell 4 April Hogs at 48.60".

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Avoiding Common Pitfalls

1. Be sure to specify if you want to have a GTC (Good-Til-Cancelled) Order. If you do not specify your order as GTC, it will be placed as a day order and canceled at the end of the trading session.

2. Be very clear when placing your orders. Our order specialists are eager to please. If you have any questions, please do no hesitate to ask. Listen very carefully when the order specialist repeats your order. It is your job to correct any incorrectly repeated order; don't be casual about it. If the order specialist does not repeat your order, he may not have gotten it. In this case, verify that your order was even taken.

3. Since some months sound alike over the phone, many customers prevent errors by referring to "September Labor Day" and "December Christmas", as in "Sell 5 December Christmas Corn at the Market."

4. If a commodity trades at two exchanges, one of which is the Mid-American Exchange, it is usually not necessary to specify an exchange unless you want to trade the Mid-Am. Otherwise, we will assume that you want your order placed at the primary (larger) market.

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Exchange Information on Orders 

Different Exchanges accept different orders. All of the orders which we have discussed are not accepted by all exchanges.  Following is a list of the major commodity exchanges, their commodities and the orders which they accept: 

CHICAGO BOARD OF TRADE 
(Acceptable are: Market, Market on Close, Limit, Stop, and Fill or Kill Orders) 

WHEAT CORN 
OATS SOYBEANS 
BEAN OIL BEAN MEAL 
T-BONDS T-NOTES 
MUNI BONDS FIVE YEAR NOTES 
TWO YEAR NOTES DJIA Index 

CHICAGO MERCANTILE EXCHANGE 
(All of the orders described in this section are acceptable) 
LIVE CATTLE FEEDER CATTLE 
LEAN HOGS PORK BELLIES 
LUMBER 

INDEX AND OPTIONS MARKET (IOM) 
(All of the orders described in this section are acceptable) 

S&P 500 
MID CAP 400 
NASDAQ 100 

INTERNATIONAL MONETARY MARKET (IMM) 
(All of the orders described in this section are acceptable) 

T-BILLS JAPANESE YEN 
EURODOLLARS BRITISH POUND 
CANADIAN DOLLAR SWISS FRANC 
EUROCURRENCY AUSTRALIAN DOLLAR 
MEXICAN PESO EUROYEN 

GLOBEX
(Only Limits, Stop Limits, and Market if Touched (MIT) are acceptable) 

NEW YORK COMEX 
(For Copper only, Acceptable are: Market, Market on Close, Limit, Stop and Fill or Kill. OCO Orders are acceptable only if the second half of the order is a MOC.) 

COPPER 

(For Gold and Silver, Acceptable are: Market, Market on Close, Limit, Stop, and Fill or Kill. Stop Limits are acceptable only on a not-held basis.) 

GOLD 
SILVER 


NY COTTON EXCHANGE 
(Acceptable are: Market, Market on Close, Limit, Stop, and Fill or Kill. OCO Orders are acceptable but only if the second part of the order is a MOC) 

COTTON 
ORANGE JUICE 
DOLLAR INDEX 


NY COFFEE, SUGAR & COCOA EXCHANGE 
(All of the orders described in this section are acceptable) 

COFFEE 
COCOA 
SUGAR 


NY MERCANTILE EXCHANGE 
(All of the orders described in this section are acceptable) 

LEADED GASOLINE HEATING OIL 
PLATINUM CRUDE OIL 
PALLADIUM NATURAL GAS 


NY FUTURES EXCHANGE 
(All of the orders described in this section are acceptable) 


NEW YORK STOCK EXCHANGE INDEX 
CRB INDEX 


KANSAS CITY BOARD OF TRADE 
(All of the orders described in this section are acceptable) 

KANSAS CITY VALUE LINE 
KANSAS CITY MINI VALUE LINE 
(Acceptable are: Market, Market on Close, Limit, Stop and Fill or Kill) 

KANSAS CITY WHEAT 

MINNEAPOLIS BOARD OF TRADE 
(All of the orders described in this section are acceptable) 

MINNEAPOLIS WHEAT 
MINNEAPOLIS WHITE WHEAT 


MID AMERICA EXCHANGE 
(Acceptable Are: Market, Market on Close, Limit, Stop, Fill or Kill and Stop Close Only Orders) 

CATTLE HOGS 
SILVER GOLD 
CORN BEANS 
WHEAT T-BILLS 
T-BONDS SWISS FRANC 
CANADIAN DOLLAR EUROCURRENCY 
JAPANESE YEN BRITISH POUND 
SUGAR 


***PLEASE NOTE THAT THE INDIVIDUAL EXCHANGES MAY CHANGE THE ORDERS WHICH THEY ACCEPT WITHOUT PRIOR NOTICE. 

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The information contained herein is believed to be reliable, Farr Financial is not held responsible as to its accuracy or completeness. The information contained herein is subject to change without notice.  Those using the information herein for trading purposes are responsible for their own actions and no claim is made that the recommendations will be profitable or that they will not result in losses.
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