Chapter 2

Understanding the Basics of Order Entry

In order to participate in the markets, we must place entry and exit orders. This section will briefly cover some of the more common trading definitions and types of orders available.

Common Trading Terminology and Definitions

Going Long vs. Going Short

To go long means to enter the market with a buy order, with the intention of buying low and subsequently selling higher. This is also called a buy to open order. A sell to close order is used to exit a long position, also called liquidating a long position. Every long entry will exit with a sell order, be it a profit or loss exit.

To go short, on the other hand, means to enter the market with a sell order, with the intention of selling high and subsequently buying back lower. As you may expect, this is referred to as a sell to open order. A buy to close order is used to exit or cover a short entry. In summary, to exit longs, we liquidate, and to exit shorts, we cover.

A trader is said to be square when he or she has no directional bias in the market. Being square means having either no positions in the market (in cash), or perfectly hedged positions in the market.

Perfectly hedged describes a trader without net long or short positions. Net long means your overall positions consist of more long positions than shorts, and vice versa. Cash position, or being in cash, means having no positions, and hence no rollover interest or spreads.

Bid and Ask Prices

To open a long or cover a short ...

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