|
PureBytes Links
Trading Reference Links
|
Dear Group,
Most of my experience is derived from trading the S&P, at the CME. I use
price orders practically exclusively, both on entry (a Limit order) and exit
(an MIT order). By using an MIT order on exit, I may sacrifice a few points
of profit that I might otherwise receive by using a Limit order in order to
obtain the certainty that my order will be filled and I have exited the
trade, regardless of what the market may do thereafter. The problem I
intend to avoid is where the market approaches and hits my Limit price to
the tick and then retraces --- Have I been filled or not? I buying
certainty and sacrificing profit.
Recently, I've gotten interested in trading the Dow and Bonds, on the CBOT.
The problem is that MIT orders are not accepted at the CBOT, as they are at
the CME. Some brokers will accept them on a "Not Held" basis, meaning that
one must accept the brokers' results regardless of outcome, and they
encourage the use of Limit orders instead. I've asked brokers "How many
points off my target must I allow in order to guarantee a fill?" They
usually say "One, maybe two." (Example: Market at even. I am long and want
to exit by selling at 20. Usually, I would use: S at 20 MIT. Here, giving
up one point: S at 19 Limit.) Having problems with that little fudge word
"usually", I thought that I would consult the Board's official rules and
regulations.
I looked for the rules and regs on the Board's web site (www.cbot.com), but
they are not there.
I telephoned the Board and asked to speak to someone about the rules and
regs regarding order fills. They transferred me to their Office of
Investigation and Orders. I told them my concern and they said that someone
would call me back and answer my questions. Shortly thereafter, I received
a call from Dean Payton, in that office (312 435-3658), who patiently and
cordially spent considerable time with me, for which I am grateful. What I
got was as follows:
1. Is there any difference between a Limit order and an Or Better order?
Payton: No, they are identical for purposes of the Board.
2. Are there any conditions under which a fill is guaranteed upon use of a
Limit order?
Payton: No. You misunderstand the rules and regulations. They
provide only a standard of "Due Diligence." What that means is that a
broker's actions regarding filling an order is considered in light of all
the facts and circumstances or the situation on the floor at the relevant
time. Therefore, while giving up a point or two off your target price with
a Limit order will probably 99% of the time result in your being filled,
there are a number of circumstances that could obtain which would result in
your not being filled even if the market went through your price by a tick
or two or more, and the broker could not reasonably have been expected to
have filled your order. For example, he said, fast markets, high
volatility, multi-tick price jumps, as well as the execution at the prices
past your Limit price being for small volume, for example, one or two contracts.
3. Assume a market that trades in one point ticks, the market is at even,
and an order of S at 9 Limit:
a) Market trades 6,7,8,9,8,7, and lower.
b) Market trades 6,7,8,9,8,9,8,9,8,7 and lower.
Payton: These two situations are alike --- you are unlikely to be
filled.
c) Market trades 6,7,8,9,10,9,8 and lower.
d) Market trades 6,8,10,8, and lower.
Payton: These two situations are alike --- you will likely be
filled, but you can't be sure.
4. So what I'm hearing is that there is no rigid rule, that the rules are
flexible.
Payton: That's right. There's no rule that guarantees you a fill
under all circumstances, even during a "non-fast" market.
Old presumptions die hard. Ouch!
Sincerely,
Richard Josslin
|