Contracts for difference

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11. Types of order

One way of trading a CFD (or any other security for that matter) is to ring up your broker, ask the market price, and buy or sell immediately based on that price. But that's not always convenient. What if the price isn't quite where you want to trade, and what if you don't have time to watch the market for the next few hours?

That's where other types of order come in useful:

1. Orders conditional on price

   A limit order is an instruction to your broker to transact on your behalf if and when the price hits a predefined figure. It's a useful device if you know that you're going to be out of touch, and you want to make sure that when a buying or selling opportunity comes along you're there to take it.

   »  Example

   EMAP is being offered at 806/810. You don't want to buy at 810, but think 808 is a good price. You can leave an order with your broker to buy if the price drops to 808p.

   You can also use a limit order to take profits.

   »  Example

   Having bought EMAP at 808p, you watch the price climb to 812/814. You think it will go higher still, and leave an order with your broker to close out your position if the sell price rises to 815p.

   With limit orders, your broker will transact on your behalf if, and only if, the price reaches the price you have stipulated.

2. Orders determined by time

   Independent of, or in combination with, a limit order, you can set a time limit on your order.

   • A day order means that the order you place will be cancelled at the end of the trading day on which it is given. If you want the order to be maintained the following day, you have to place it again with your broker.
   • A good til cancelled (GTC) order means exactly what it says. The order will remain live either until it is executed or you specifically cancel it.

3. Stops are a way to cut your losses on a position by setting a floor in advance.

   • If you go long on EMAP CFDs at 808p, you might place a stop with your broker to close the position at 799p. That way, your losses are limited to 9p per contract.
   • If you go short on EMAP CFDs at 799p, you might place a stop with your broker to close the position at 808p. Again, this would limit your losses to 9p per contract.

   Stops are such an important part of risk management, that we've considered them in more detail on the next page.

4. One-Cancels-the-Other (OCO) orders

   OCO orders are a combination of a limit order and a stop loss order. Suppose that you buy EMAP at 808p and you want to make sure that your position is closed either if the price rises to 815p (you take profits) or drops to 799p (you cut losses). An OCO order will ensure that your broker does whichever comes first and that the other order is cancelled.

1. What are CFDs? 2. The benefits of CFDs 3. Initial margin 4. Variation margin 5. Commission costs 6. Interest payments 7. Dividends 8. Example of a long and short trade 9. Comparison of CFDs to share investing 10. Comparison of CFD trading to spread betting 11. Types of order 12. Stop losses 13. Strategies: Pairs trading 14. Strategies: Hedging an equity portfolio 15. Opening an account with a broker 16. Conclusion

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