Commodity Spread Limit Orders question

Discussion in 'Order Execution' started by TWolf, Apr 2, 2012.

  1. TWolf


    Relative newbie here (4 years part-time). Searched the forum; searched the CME site. Can't find a definitive answer.

    Do spread limit orders in commodities exist? If so, how do I use them?

    I frequently read/hear about their use but have been told by 3 different brokers that they don't actually exist. Others have said my broker(s) don't know what they're talking about.

    Here's what I understand using an actual example that occured today:


    (I've already taken good profits and am still in the trade so decided to experiment with one position, considering it the "cost of education" so-to-speak.)

    Spread was 20.40, premium to July (buy side; positive spread). Brokerage firm considers this a "debit spread". My only limit order options are "limit/buy" or "limit/sell". Verifying the "debit/credit" spread requirements, I submitted a "limit/buy" order ("debit spread") at 23.00 and was immediately filled at 21.00 (expecting that this would happen). Next, I submitted a "limit/sell" order ("credit spread") at 23.00; the order was rejected and cancelled.

    Speaking with the broker I'm told: there are no such "resting" limit orders for commodity spreads; if I want to enter the market at a spread that is higher (wider) than the current spread all I can do is watch the market and when it reaches my entry level submit my order at that time. A limit/buy placed above the market will be filled immediately (which I understand in outrights); a limit/buy below the market or a limit/sell on a "debit spread" will be ignored or cancelled; the opposite occurs for negative (i.e., "credit") spreads. Effectively, there is no such thing as a "limit" order in commodity spreads - you get filled immediately at market or not at all.

    This runs contrary to limit orders in the outrights where you place the appropriate limit order above/below the current market and wait.

    I read and hear about spread limit orders used in commodities frequently and their use is actually recommended over market orders (or so I've read). Perhaps I just don't understand the proper use of limit orders for commodity spreads? I mean, my broker does offer them but what's the point if I'm immediately filled at market? Does the limit order used in this manner just help control slippage?

    Anyone have any clue what I'm talking about or dealing with here? Is my brokerage firm pulling a fast one on its novice customers? Do these limit orders actually have to be placed verbally with a full-service broker who then watches the market for you and executes at your price? Or is all this spread limit order info I've read simply a bunch of hogwash directed at us novice traders? Surely, I can't be THAT clueless (or can I [and don't call me Shirley])?

    So far, I've had 3 profitable years and one not-so-much year. Just trying to learn and get better at this. Any info that can set me on the right path is greatly appreciated.


    p.s. sorry for the long post; just wanted to be clear on my question.
  2. rmorse

    rmorse ET Sponsor

    I'm not an expert on this, but to my knowledge, the CME does not have a Complex Order Book (COB). If you want to enter a spread order, you need to find a broker with a presence in the trading crowd to represent your spread, as a spread in the crowd. If he can find a local to do the other side, your done.
  3. Karneval


    IB supports limit orders on calendar spreads.
  4. TWolf


    Thanks Robert.

    The spread orders in general are not an issue; just seems I have no choice but to submit them as market orders which results in fills that aren't that great.

    Seems others claim to use limit orders but I'm told there's no such thing, so I'm just trying to sort out the facts. I'm sure there's just some detail that I'm missing and hoping someone here can enlighten (educate) me.

  5. drm7


    Are you entering the order as two seperate legs using an autospreader (or floor broker), or are you trading the exchange-supported spread (which most calendar spreads are). Exchange-supported spreads have their own order books, so I don't see why you couldn't put in a "resting" order - you can see huge depth on the DOM for most calendar spreads.
  6. bone

    bone ET Sponsor

    I am an expert on the topic, and most spread orders are usually executed electronically as exchange-supported instruments these days. You can use any limit order or most other strategy that is supported by that particular exchange's order matching algorithm. And that includes stop limit orders where you specify the pay-up tic range. That includes MOC, OCO, and all of those strategies.

    We trade scads of these things every day, and I personally can use any TT order type that is available for flat price markets as I can for the exchange spreads.

    You can use a single DOM price ladder arrangement. In other words, one DOM window for a Nymex RBOB Crack Spread or a Eurodollar Dec 13-Dec 14 calendar spread.

    You do not need to involve the floor. Bad idea under any circumstance.

    You do not need to "go to market."

    You do not need an AutoSpreader or AutoTrader.

    The only exception would be for a synthetic intra-market spread strategy.

    Look at section 3.2:
  7. TWolf


    drm7 - entering them electronically using my brokers' electronic order screen; trading calendar spreads only.

    Bone - I here ya, but... I submit the orders and they are executed immediately or cancelled. Is this actually being done by my brokerage firm behind the scenes rather than the exchange? Perhaps THEY don't support the order format and simply won't tell me the truth?

    Apparently, you guys are telling me that spread limit orders for calendar spreads are used all the time, including "resting" orders. Exactly what I've heard from others.

    The firm I trade through is one of the more well-known firms so I'm perplexed about their brokers telling me limit orders for spreads don't exist. Seems shady, but since they're not some back-alley boiler room I just don't want to believe they're BS'n me.

    I guess it's time to change firms...

  8. TWolf


    I was/am considering IB. I'm just not sure if that's where I should be. I'm still relatively new at this and don't trade any meaningful size (yet), only 30-40 trades per year. Don't feel I need a person to actually talk to as I haven't in 4 years (except to ask about my limit order issue), so IB is fine as far as that goes; just seems all the big, professional traders are there and I am definitely NOT that (yet).

    Thanks for the input; I guess I should at least make a call to them.

  9. TraDaToR


    TWolf, who are these 3 brokers so that we can definitely avoid them? It's one thing to say we don't support them( TradeStation, Ninja Trader brokers... ), it's another to lie or be so clueless to pretend they don't exist.

    Every commodity has at least autonomous tradable calendar spreads( CME, CBOT, ICE, KCBOT, MGEX, NYMEX, IPE, NYSELIFFE...), some have intercommodity spreads.
  10. TraDaToR


    I think you are confusing things. Globex doesn't support implied functionality on OPTION spreads, but they exist as tradable instruments independently from option legs markets.
    #10     Apr 3, 2012