You enter an order to tell your broker what to buy or sell, when to do it, and at what price. There are many types of orders, but beginning traders really need only three: the market order, the limit order, and the stop order. The examples below use these orders for futures transactions, but the identical orders can be used for option transactions. All orders are assumed to be day orders, meaning that they automatically expire at the end of the trading day if not filled or executed, unless you specify that the order is GTC (Good Till Cancelled). A GTC order remains a working order session after session until it is filled or cancelled by you, so be sure to properly record and remember them.
The Market Order:
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A market order is the simplest of orders and is used when the greatest priority of the customer is for immediate execution. (An order is executed or filled when the futures contracts have all been bought or sold, depending upon the instructions in the order.) A market order instructs the broker to buy or sell futures contracts immediately at the market price, whatever it may be. The customer does not specify the price in a market order. Market orders are the easiest way to enter or exit a market since the customer receives immediate execution - and must pay or receive whatever price is necessary for immediate execution. For example, a customer who wants to sell 5 March cotton futures immediately would enter an order to sell 5 March cotton at the market. The customer does not know the selling price of their cotton futures until after the order has been executed.
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The Limit Order:
With a limit order, price takes the highest priority. For limit buy orders, the customer includes, along with the type and quantity of futures contracts to purchase, a maximum price to pay for the contracts. A customer will use a limit buy order if they desire to buy the futures contract, but want to pay no more than a specified price - the limit price. This price is always below the market price since the customer wishes to buy at a cheaper price. For example, assume December gold is trading at $395.75 per ounce. A customer who enters a limit order to buy 5 December contracts at $392.00 is willing to buy gold futures only if they can be acquired for $392.00 per ounce. This limit order to buy will only be executed if the market price declines to the limit price.
For limit sell orders, the customer specifies a minimum price to sell the contracts. A customer will use a limit sell order if they desire to sell the futures contract, but want to receive at least some specified price - the limit price. This price is always above the prevailing market price. For example, assume December gold is trading at $395.75 per ounce. A customer who enters a limit order to sell 5 December contracts at $398.00 is willing to sell gold futures only at a price of $398.00 per ounce or higher.