Knowing Your Financial Spread Betting Orders

Part of Financial Spread Betting For Dummies Cheat Sheet (UK Edition)

After you decide which type of financial spread betting provider fits the bill for you, you need to examine the ways in which you can manage your account and your trades. One of the main areas of spread betting that new traders often find a bit of an eye opener is the wide range of different orders available. An order is an instruction from a trader to the provider to buy or sell a specified item in a market.

Spread bets are generally a non-advisory product, which means that you’re totally responsible for making all your trade decisions and placing all your orders. We strongly suggest that you set yourself a routine for placing orders, such as always reading your order back to yourself twice or even saying the order out loud, to ensure that you aren’t betting £100 a point when you want to bet £10. Such a huge error takes the fun out of your day very quickly indeed!

  • Market orders: A market order is an order to buy or sell immediately at the current market price. Market orders are probably the most commonly used orders because they allow you to get in and out of the market immediately.

  • Stop orders: A stop order is an order to buy when the price has climbed to or above a specified stop price or to sell when the price has dropped to or below a specified stop price. The stop order is one of the most important orders available to traders because you can use this order to manage your risk by selling automatically when the price reaches a level that you nominate.

  • Stop loss orders: A stop loss order does exactly what the name implies – it stops your loss. The reason a stop order isn’t always a stop loss order is because you aren’t always going to use the order to stop a loss – you may also use the order as a stop entry order.

  • Contingent orders: The broker executes a contingent order only if it is instructed by you to execute another order first. Contingent orders are used in a similar way to stop orders. Effectively, you are asking the broker to execute one order only IF another order happens first. If this happens, you are saying, then do this. By using a contingent order you’re saying that if the market trades at a certain price then your provider should automatically place a market order – which is how a contingent order behaves in a way similar to a stop order. If your provider offers this type of order instead of stop orders, you can use it as your primary means of managing your risk.

  • Limit orders: A limit order is an order to buy at no more than (or sell at no less than) a specified price. You use a limit order if you want to deal at a price below the current level (that is, if you want to go long – meaning to benefit from a rising price) or above the current price (that is, if you want to go short – meaning to benefit from a falling price). This means that you trade only if the price moves to the level that you nominate.

  • Requotes: A requote occurs when the market is moving quickly, and the provider does not want to offer you the spread bet at that price. A requote isn’t an order type in itself; it’s something of a subset of orders. The provider will usually either offer you an alternative price, or simply say the price you wanted to open the bet at is no longer available. It is rare for this to happen these days, as many of the biggest providers now use highly automated systems for calculated trades. It can also happen if too many traders are taking the same position, and the provider is finding it difficult to hedge this in the market.

  • Guaranteed stop loss orders: Using a guaranteed stop loss order (GSLO) from a provider helps you manage your risk even more effectively than with a regular stop order, because you pay extra to ensure that if you get stopped out, you know at exactly what price it will occur. The benefit is that even if large price gaps develop (perhaps triggered by a large fall in the US market overnight), you have the assurance of knowing where you’ll get stopped out.The downside to using a GSLO is that you have to pay a premium upfront whether the provider executes the order or not.

  • If-done orders: An if-done order is an advanced order type that allows you to connect two different orders together, such as a limit order and a stop order. As the name implies, if one order is done, the other order is placed. Using an if-done order enables you to plan much of the order set-up ahead of time and then execute the order automatically when certain conditions are met.

  • One cancels other orders: One cancels other (OCO) orders are designed to let you have two connected orders (to get you out of the market) surrounding a position that you already have. Most commonly, this allows you to either stop your loss (if the price moves against you) or take your profit (if the price moves in your favour). OCO orders are a really important order type for many traders, but if you plan to trade a 24-hour market like FX then they’re essential.