CFD Order Types


tickmill
tickmill
tickmill

CFD Order Types for todays markets

CFD Order types are very easy to understand once you get used to them, however initially they can be a little daunting. Take your time geting to know the differentCFD Order types and you’ll find that you only use a couple of standard orders regularly and within no time placing orders becomes a breeze.

CFD order types fall into 3 main categories

  • Market & limit CFD orders
  • Contingent & If done CFD orders &
  • Guaranteed CFD orders

Here we’ll take a close look at each type of CFD order and some examples to go with them.

At Market or Market Order

An At Market CFD Order is an order to buy or sell a stock or CFD at the current market price. If you wanted to buy at Market and the current BID/ASK spread was $10.00 / $10.01 then you would buy at $10.01 providing enough volume is there at that price.

At Market orders are only executed during market hours.

Limit order to buy

A limit order to buy is when you wish to purchase a stock or CFD at $9.90 when the current price is higher, say $10.00. Your goal is to purchase your CFD cheaper than what the current price is.

Limit order to sell

A limit order to sell is when you wish to sell a stock or CFD at $10.10 when the current price is lower, say $10.00. Your goal is to sell your CFD higher than what the current price is.

Using a limit order to close a position is often referred to as a take profit order.

Stop order to buy to open a long position

The current price is $9.90 and you wish to buy when the price hits your entry target of $10.01. You would use a CFD order called a Stop to buy or stop to enter long.

NOTE: Not all CFD brokers allow you to use a stop to enter long on the Australian Share CFDs.

Stop order to buy to close a short position

You are already in a trade and you are short (looking to profit as the market falls). The market is at $10.00 and you have a stop to close set at $10.20. That is a stop to buy to close your short position.

Stop order to sell to open a short position

The current price is $10.10 and you wish to short sell when the price hits your entry target of $9.99. You would use a CFD order called a Stop to sell or stop to enter short.

NOTE: Not all CFD brokers allow you to use a stop to enter short on the Australian Share CFDs.

Stop order to sell to close a long position

You are already in a trade and you are long (looking to profit as the market rises). The market is at $10.20 and you have a stop to close set at $10.00. That is a stop to sell to close your long position.

OCO (One Cancels the Other)

The OCO CFD order type is great for people who are:

  • time poor
  • not able to sit in front of the computer all day
  • needing protective sell orders after entering a CFD position
  • With this CFD order you must already be in the market as an OCO is placing both a profit target and a Stop loss order at the same time.

OCO CFD order when long

You are already in the market at $10.00 and you place a limit to sell (profit target) order at $10.30. Following on from this you place a Stop to sell to close your long position at $9.90.

OCO CFD order when short

You are already in the market at $10.00 and you place a limit to buy (profit target) order at $9.70. Following on from this you place a Stop to buy to close your short position at $10.10.

If Done order – Contingent CFD order

If Done CFD orders wait for a entry condition to be met and then immediately place a follow on order to close that trade.

Long Trade: The market is at $10.00 and you wish to enter long if the market hits $9.90. If that order is done then immediately place a Stop to sell at $9.70.

Short Trade: The market is at $9.90 and you wish to short sell if the market hits $10.00. If that order is done then immediately place a Stop to Buy (closing the trade) at $10.20.

IF Done orders are known as contingent orders as they are contingent on the first leg of the trade to be executed before the 2nd part is triggered.

Trailing stop Loss

Automatic trailing stop loss orders are not very common in CFD trading. A CFD trailing stop loss order automatically moves your stop loss up as the CFD you are on increases in value for long positions.

For those that are time poor and have better things to do with their time than watch their CFD trades all day you can find CFD brokers that manually move your stops for you when your price conditions have been met.

One such CFD broker is MF Global who will monitor your positions based on criteria you have set for trailing stop loss purposes.

For example you have entered a long position at $10.00. You tell your MF Global broker to trail a stop loss if the following conditions have been met:

Price hits $11.00 – move stop to $10.70
Price hits $11.50 – move stop to $11.20
Price hits $12.00 – move stop to $11.70

MF Global brokers in this instance will manually move your stops every time a new condition is met.

Portfolio Management Software for Traders

Guaranteed Stop Loss

Very simply this is a price the CFD broker will allow you to trade at irrespective of what happens in the market. They will guarantee you the price that you set. For this they charge an upfront premium as the CFD provider is taking on the risk in this scenario.

Guaranteed Stop Loss trading example

The current market is $10.00 and you are long. You believe the market has the potential to fall heavily the next day, so you take out a guaranteed stop loss to protect your position. Most CFD providers have restrictions on how close you can place your guaranteed stop loss (ie 5% away from the current price).

In this example we would place a guaranteed stop loss order at $9.50 to close our long order. Normally your CFD broker will charge a premium on this order of up to 5 times more than a standard order.

The market opens the next day at $8.00. Aren’t you feeling good that you got a guaranteed stop loss order in? You have been saved and your order will be executed at your guaranteed price of $9.50, not the actual market opening price of $8.00.

Are guaranteed stop losses necessary?

If you trade at sensible levels of leverage and use reasonable stop losses then you probably don’t need to increase your trading costs unnecessarily by using guaranteed stop losses. It’s a personal choice but most professional traders are always looking to keep their trading costs down. It would be wise to ask other CFD traders if they use them and what their reason is behind using them.

tickmill
tickmill
tickmill
tickmill
tickmill