Market Order is a buy or sell order for a derivative contract at the best available price in the market at the time of the order, and it is executed immediately. However, the execution price may differ from the desired price due to market volatility.

Limit Order, also known as a pending order, is a buy or sell order for a derivative contract at a predetermined price or better. A buy limit order will be executed at the maximum price the investor is willing to pay (the predetermined buy price) or lower; while a sell limit order will be executed at the minimum price the investor is willing to sell or higher. Limit orders can also be used to take profit.

For example, if the current price of the November 2024 Soybean futures contract is 1,027 cents per bushel, but an investor believes a better price might be available, and they want to buy 3 November 2024 Soybean futures contracts at no more than 1,024 cents per bushel. The investor can place a limit buy order for this contract at the desired price. This buy order will be executed if the price reaches 1,024 cents per bushel or better.

Later, if the investor believes the price may rise to 1,026 cents per bushel, a level where the investor can make a profit, they will place a limit sell order at 1,026 cents per bushel.

Stop Order, also known as a stop-loss order, is a conditional order. When the market price reaches the stop price, the order is triggered and becomes a market order. A buy stop order becomes a market order when the derivative contract price is equal to or higher than the stop price; conversely, a sell stop order becomes a market order when the contract price is equal to or lower than the stop price. In other words, stop orders are often used to limit losses.

For instance, an investor sells 3 November 2024 Soybean futures contracts at a price of 1,024 cents per bushel. Since the investor is in a sell position, if the price rises above 1,024 cents per bushel, the investor could incur a loss, with a maximum acceptable loss price of 1,026 cents per bushel. Therefore, the investor places a buy stop order at 1,026 cents per bushel to close the position if the market moves upwards.

Stop-Limit Order is considered a variation of the stop order, combining a stop order and a limit order. When the price reaches the stop price, the stop-limit order is triggered and becomes a limit order, meaning it will be executed at the limit price or better. In contrast, a regular stop order becomes a market order when the market price reaches the stop price.

For example, an investor bought a November 2024 Soybean futures contract at a price of 1,024 cents per bushel. To limit the risk of a rapid price decline, the investor can place a stop-limit sell order with a stop price (or trigger price) of 1,020 cents per bushel and a limit price of 1,019 cents per bushel. This means that when the price drops to the stop price of 1,020 cents per bushel, the order will be triggered and become a limit sell order, with a price no lower than 1,019 cents per bushel.

Regarding order validity, there are 6 basic orders:

• Day Order: An order valid only for the current trading day, and if not executed during the trading day, it will be canceled at the end of the day.

• GTC (Good-Til-Canceled Order): An order valid until executed or canceled, meaning it remains in effect until fully executed or canceled by the trader.

• GTD (Good-Til-Date Order - GTD): An order valid until a specific date in the future. If not executed by the predetermined date, it will be canceled at the end of that day.

• GT (Good-Til-Time Order - GT): An order valid until a specified time, and if not fully executed by then, it becomes a parked order.

• FAK (Fill-And-Kill Order): If the order is not fully executed immediately, the unexecuted portion will be automatically canceled.

• FOK (Fill-Or-Kill Order): If the order is not fully executed immediately, the entire order will be automatically canceled.

Source: Compiled from various sources.