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Spread Betting – An introduction to the
Terminology of Market Orders
There are several steps that it is necessary to take in your education of the mechanics of spread betting before you will be equipped with the necessary knowledge to stand a chance of successful trading. The basic premise of spread betting is that you can win money through speculating on movements in value of assets listed on the stock market, without actually buying or selling anything. Once you are familiar with the way that spread betting wagers are place on a pounds per point movement basis, and that is, movement away from the bid and offer prices set by the spread betting company, you are ready to ready to start learning about the essential tools known as orders. Orders can be used to start a bet (enter a market) or conclude a bet (get out of the market) as well as to take profits and limit losses. It is essential to have a sound understanding of how the different orders work before you begin trading through spread betting if you are to stand a realistic chance of making a profit. Here we look briefly at the most common type of order, the market order.
Before we look at the basics of market orders, a quick refresher on long and short positions, and an introduction to some basic order terminology. A long position means buying into a market – that is, predicting a rise in the value of an asset - and to achieve profit the rise in value will be above the offer price. A short position means predicting a fall in value, again, hopefully below the bid price for a profit to be made. The same type of order can be used to achieve opposite effects – or in reverse if you will – depending on whether you have taken a long or short position.
An order is said to be ‘filled’ when it has been completed. If the conditions have not yet arisen for the order to be completed, the order is ‘unfilled’. Unfilled orders are known as ‘working orders’ – the ‘work’ of the order is yet to happen, the order is still in force. To get out of a current position – either short or long – you cover. Logically, this means the opposite of your position. Therefore you sell when in a long position, or buy when in a short position. Another way to describe covering a position is that you have liquidated a position.
A market order can be used to either open or close a trade. Put most simply, a market order is an instruction to either buy or sell. For example, a spread betting company like Trade Fair offers a 4237 – 4239 spread on the FTSE. In this case, a market buy order would be executed at the offer price of 4239. A market sell order would take place at the bid price of 4237. If you wanted to take a long position, you would use a market buy order to enter the market at 4239. If several hours later the value of the FTSE had risen to 4250, you might want to close your position to take the profit, and to do this you would execute a market sell order. However, it is important to note that market orders trade at the current market value, which can fluctuate wildly in volatile markets. This means that due to the time lag between instructing a market order, and the order being filled, the market value of the FTSE can have changed from the bid price that you were quoted.