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The "How to Execute a Commodities Trade " article examines and elaborates upon commodities and futures contracts with special emphasis on how to place and execute commodity futures orders and the minimum information needed so as not to waste time and avoid errors and mistakes.
Order placement really is not that difficult with commodities trading. Being comfortable with the process is just a matter of routine. Once the steps to accurate order placement are known, it will become second nature. The most important aspect of order placement is to have a thorough knowledge of the different types of orders that are available to you. It is almost self evident that with a fluent understanding of the types of orders and how to place them, you will increase your ability to act and react to the full range of all market situations that you may encounter.
The steps to placing a commodities trade
There are logical reasons for making your orders in a standard fashion. Order errors, more likely than not, will result in diminished results. Whether you are placing an order over the phone or electronically via the computer, it is advisable to use the following steps.
- Identify yourself. Regardless of the type of order you are going to make, your order taker needs to know who is placing the order, whether it be you personally or some sort of trading entity (partnership, company). You also have to give your account number. Without this basic information, no trade will be possible.
- Specify whether you are buying or selling . This may appear self evident, but incomplete information sent electronically will only result in "order rejected" messages, which will force you to start from the beginning, wasting precious time and possibly missing trading opportunities.
- Quantity. Specify the number of contracts you want traded on your order.
- Designate Day or Good Till Cancelled Order. Once your account has been accessed, the most important thing for the broker to ascertain is whether the order is for the current trading session only (day order) or valid until filled or cancelled (good till cancelled order). Good till cancelled orders automatically end on contract expiration or a given specified date. This is probably the most fundamental error made by novice traders. Placing a day order when you wanted a good till cancelled order usually will result in a missed fill.
- Product. You must indicate what you want to trade, whether it is a commodity or financial futures. As some futures are traded on several different exchanges, you must also designate on which exchange you want your order placed.
- Month and Year. It is imperative to specify the delivery month and year, as many futures in the markets are not for delivery until the following year or later.
- Indicate the price. The broker needs to know at which price the order will be implemented.
- Type of order . You need to inform the order taker precisely what kind of order you are placing: market, stop, limit, etc.
These are the minimal pieces of information any futures brokerage will want for a commodities futures trade execution. Each firm may a have a slightly different procedure, but all will require the above information. By having this material properly prepared prior to making a trade, errors will be avoided and the probability of successful results increased.
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