Are you planning to invest your money in trade? You might be considering futures trading as one of the options for your business venture. However, before fully participating into the futures trading system, it is important to read and search through information that can be useful once you start your trade. Specifically, in the futures market, two major concepts about orders have to be understood by traders. These two concepts include limit and stop-loss orders.
How Does Limit and Stop-Loss Orders Work?
Stop-loss orders are used at a certain price and if the market price amounts to the order price, the order will be considered as a limit order. Hence, stop-loss orders are intended to limit or regulate the amount that a specific trade can lose, which is usually done by making a trade exit if the target price is reached. For instance, an investor may enter a long trade of $4,000 and would place a stop-loss order on $3,950. From this price range, the trader will make a risk in speculating the commodity in fifty points less. If the price will be less that $4,000, the trader will exit in the trade and limits the loss. Stop-loss orders are generally used in futures trading to regulate the loss and manage risks if the trader is in doubt of his price speculation.
On the other hand, there are also limit orders that should be filled in. Limit orders are executed in such a way that the order price is only filled so that the stop-loss order will only amount to the stop-loss price. However, there are times when the limit orders are not usually filled in; hence, the trade cannot be exited or completed. If the limit order is not filled definitely, then the trade will remain active.
Important Points to Consider in Choosing Orders
In choosing which type of order to use in completing a transaction whether in the usual trade futures or online future trading, the following points need to be considered:
For one thing, you need to be extra careful in setting up your stop-loss points. Do not set up your stop-loss if a stock fluctuates for three to five points. Otherwise, the trade will sell on a downswing.
Also, be prudent in taking your stop-loss order for it may take the best out of a decision to sell on the down side.
There are times when you will be out from the future trading spotlight, thus, it is best to put your stop-loss orders early so that you can protect your order from unexpected consequences.
Moreover, executing stop-loss orders do not always guarantee protection against possible losses. Hence, if problems strike, the greatest you can do is to hope that the price comes near to your prediction.