Lesson 7 -- Orders in the Pit

A brokerage firm ("house") that is a member of the Chicago Mercantile Exchange (CME) places orders to buy or sell futures or options contracts for companies or individuals and earns a commission on each transaction. Everyone who trades futures and options contracts must have an account with a brokerage house.



Placing the Order

When you call in an order, you specify the futures contract you want to buy or sell, including the contract month. Each commodity has more than one contract, each one with a different maturity date. For example, there are four Eurodollar futures with maturity dates of March, June, September and December. So if you want June Eurodollars, you have to let the brokerage firm know that. You also say whether you’re buying or selling and how many contracts you want bought or sold. Sometimes you even dictate the price.



The market order is one type of order. When you place a market order, you are asking that order to be filled at the best available price immediately after receipt of the order. You might say, "Buy 2 December Deutsche marks at the market." After the brokerage firm writes up this order, it’s rushed to the floor broker in the pit who executes it right away.

If you place a limit order, you’re asking the broker to fill the order at a specified price. If you say, "Buy 20 January Lumber at 395 even" ($395.00/thousand board feet), the floor broker can fill the order at 395.00 or any price lower, but not at a higher price. Likewise, if you say "Sell 10 May Lumber at 40 even" ($400.00/thousand board feet), the floor broker can fill the order at 400.00 or any price higher, but not at a lower price.



If the price you state in your limit order isn’t reached during the trading session, your order wouldn’t be filled at all.

A Spread trade is a specialized type of trade involving the simultaneous purchase and sale of two different but related futures contracts. The spread is the price difference between the two contracts.

Spread trading can include trading different delivery months of the same commodity (March Lumber vs. July Lumber) or trading the same months of different futures contracts.

On-Line Trading Lessons -- Courtesy of the Chicago Mercantile Exchange

Futures trading is highly speculative, and can involve the loss of some or all of any monies you may commit to such trading.

No responsibility is assumed for the use of material available at this web site, and no express or implied warranties are made. Futures trading is highly speculative, and can involve the loss of some or all of any monies you may commit to such trading.