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Market order type better for futures vs Limit order?
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Market order type better for futures vs Limit order?

  #1 (permalink)
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Market order type better for futures vs Limit order?

Hi all, I'm a student learning about trading futures and just opened my first account two ago, so apologies in advance if this is a very noob-like question, but when I traded equity, I was always told to use the LIMIT order type and never use MARKET to ensure you get the price you want. I got burned once by using market instead of limit during a sell-off.

However, for Futures (would like to trade ES and CL), I see many articles recommend using the "MARKET" order type. I was always told that market orders are dangerous and should not be used, but I guess this is different for the futures market? I would like to use the market order type since it's quicker than specifying a limit on your order ticket screen, but scared of getting a bad price with a leveraged instrument in volatile markets.

If anyone could talk about their experience between the two, I would be very grateful.

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  #2 (permalink)
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  #3 (permalink)
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There is no "best" order type.

If you go Market, you give up the spread. Nothing good about that.

It depends on a whole host of factors but basically, it cannot be boiled down to a single best order type.

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  #4 (permalink)
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well, let me try to put it like that:

Pro Limit: no slippage, exact Price
Contra Limit: Missing moves because you don't get filled on your Price

Pro Market: always filled.
Contra Market: Slippage possible, especially in CL & during News. Thus worse fills that affect R:R

In ES, entering market usually means "only" giving up the spread, as @DionysusToast wrote.
If you are not scalping, I would say that a tick usually doesn't make much of a difference compared to missed winning trades.
You can, however control the risk of slippage with stop-limit orders, where you set a Limit and a range for how much slippage you are willing to accept. Best to contact your Broker / Plattform Provider for more info on ordertypes.

Hope this helps

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  #5 (permalink)
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zx58 View Post
Hi all, I'm a student learning about trading futures and just opened my first account two ago, so apologies in advance if this is a very noob-like question, but when I traded equity, I was always told to use the LIMIT order type and never use MARKET to ensure you get the price you want. I got burned once by using market instead of limit during a sell-off.

However, for Futures (would like to trade ES and CL), I see many articles recommend using the "MARKET" order type. I was always told that market orders are dangerous and should not be used, but I guess this is different for the futures market? I would like to use the market order type since it's quicker than specifying a limit on your order ticket screen, but scared of getting a bad price with a leveraged instrument in volatile markets.

If anyone could talk about their experience between the two, I would be very grateful.

It's really nothing to do with equity or futures markets. The ideas are the same for both.

A limit order does not ensure that you get the price you want. It simply ensures that IF you get your order filled, it will be at the price you want. If there are no offsetting orders available AT YOUR PRICE (someone for you to sell to or buy from) when your order comes up in the queue, then your limit order will not get filled, so you'll sit there without having gotten in the trade, while price moves on without you.

You can be very unhappy with a limit order for either a stock or a futures contract, if getting the trade was more important to you than the exact price you get. So, in a rapidly-moving market, you can get left behind with an unfilled order, which might be a bad thing if you are, for instance, trying to get out.

A market order ensures that you will get your order filled, but does not ensure the price. So if the price has to go up (on a buy) or down (for a sell) in order to get it matched to offsetting orders, then it will do so, and your price may disappoint you. But you will get a match, and the order will be executed at some price.

You can be very unhappy with a market order, if the price you have to accept is more important than whether you get the trade at all. So, in a rapidly-moving market, you will definitely get in (or out), but the price may not be what you wanted.

In your example of getting burned once with a market order in a sell-off, yes, that can happen. But a limit order might not have executed at all, and then you would still have been in your position while price cheerfully went down against you, and you wouldn't have gotten out at all. Oops.

If someone has told you to never use either of these orders, you should understand that the words "never" and "always" don't really make any sense here. It's about what you want at the time, and what you think the market is doing.

@Scalpingtrader and @DionysusToast summarized the pros and cons very well in the posts above. You'll just need to understand what each order will do for you, and what it won't.

Bob.

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  #6 (permalink)
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Thanks all! Very helpful information.

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  #7 (permalink)
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ES is a great teacher


zx58 View Post
Hi all, I'm a student learning about trading futures and just opened my first account two ago, so apologies in advance if this is a very noob-like question, but when I traded equity, I was always told to use the LIMIT order type and never use MARKET to ensure you get the price you want. I got burned once by using market instead of limit during a sell-off.

However, for Futures (would like to trade ES and CL), I see many articles recommend using the "MARKET" order type. I was always told that market orders are dangerous and should not be used, but I guess this is different for the futures market? I would like to use the market order type since it's quicker than specifying a limit on your order ticket screen, but scared of getting a bad price with a leveraged instrument in volatile markets.

If anyone could talk about their experience between the two, I would be very grateful.

Hi zx58,

One small item has been left out of the discussion here. VOLUME.

There is an old saying "Limit in and Market out." It is short and easy to remember. The market out portion they refer to is that of a properly placed stop. For your target you still want to use a limit order as that is your target price and there may be wild fluctuations at that price.

This "burned once by using market instead of limit during a sell-off" that you referred to. If it had been in the ES a true sell off in the ES market with no bounce, then with a limit order the market would have been not executed at all and you would have been down $500 or more per contract by the end of the day. Wow getting burned only once is a good thing, wish I was only burned once in learning. Problem is I am stubborn and takes more than one lesson for me to get the true meaning of the lesson.

zx58 There is much discussion of the ES trade that you can find in people's journals and general discussion on Big Mike's Trading. Best of luck in your ES trades.

Lastly you may consider using OCO orders placed right after your entry for your ES trades for Target and Stops.

Hope this helps.

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  #8 (permalink)
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@zx58

It is very simple: use a limit order above the current market (for a buy), and below the current market (for a sell), at an acceptable level of slippage, for entering/adding to a position.

Example: ES is trading 13.50 x 13.75 and you want to be long now and are okay if you get filled 3 ticks away from the current market. Click the bid at 14.25 and you're in at 14.25 or better (lower), and most likely at 13.75. Vice versa this for selling.

You should never, ever use a market order except in an extreme condition where you want to be flat, immediately, and care nothing about what price you get. You give up your choice as to what price you want with a market order. In the current market conditions especially, you can easily get slipped 8 to 10 ticks in ES if you click the button at particularly the wrong time. So use the above--it's a limit order, but because it will execute, it is a marketable limit order.

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so is it better to use
buy bid to buy
sell ask to sell
to get good entry ?

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