Futures For YouQ&A
Futures For YouInside The Futures World
Want to find out how the futures markets really work? Carley Garner is the senior strategist for DeCarley Trading, a division of Zaner Group, where she also works as a broker. She authors widely distributed e-newsletters; for your free subscription, visit www.DeCarleyTrading.com. Her books, Currency Trading in the Forex and Futures Markets, A Trader’s First Book on Commodities, and Commodity Options, were published by FT Press. To submit a question, post your question at https://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C.
DEPTH OF MARKET
Should all traders be placing futures orders through a DOM panel? What are the advantages and disadvantages of doing so?
The DOM (depth of market) panel is a platform feature that enables traders to view the “trading book” of a particular futures market while providing quick and efficient order-entry capabilities. The trading book is purely the collective working limit orders of other market participants at various prices surrounding the current market price. Note that stop orders are not included, and market orders are executed immediately so they never become part of the “book.”
The DOM panel has become increasingly popular among daytraders because of the belief that it offers users an “edge” over other market participants due to the visibility of others’ working limit orders. Nonetheless, I argue that since nearly every trader has access to DOM trading capabilities these days, there really isn’t an edge at all. Moreover, savvy traders executing large trading size have developed methods to disguise the true size of their orders through the use of “iceberg orders” (discussed in my June 2013 Futures For You column).
Perhaps the true advantage of using a DOM panel is the ease and quickness at which traders can execute orders. Although each platform will have slightly different logistics and designs, nearly all of them offer one-click order entry; drag & drop order modification; a panic button that exits all positions and cancels any working orders; and strategy orders such as brackets or OCO (one cancels the other) orders.
These tools make entering orders using a DOM (depth of market panel) ideal for daytraders because it offers fast, convenient, and reliable trade execution.Most DOM panels, for example, have a single button that, if pressed, will buy or sell the futures contract being displayed at the market (the best possible price at that moment). Onscreen number pads are commonly available that enable traders to quickly change the quantity of contracts to be executed. Similarly, traders can place limit orders within a DOM panel by clicking on the desired price within the ladder; once placed, it is possible to drag the order up or down to increase or decrease the price without ever touching the keyboard. In most instances, DOM panels offer traders the ability to turn order confirmation pop-ups on and off. I would recommend that you always use such notifications; without them, a trade is immediately sent to the exchange server for execution without an opportunity to identify erroneous trades. On some DOMs, for example, a left click enters a sell limit, and a right click enters a stop order; in others, a left click might be a buy and a right click a sell. It is easy to see how you could accidentally enter the wrong command. Without an order confirmation pop-up window, traders are prone to costly mistakes.
Another advantage to trading with a DOM is live access to important account stats within the panel itself. Most DOM windows display the trader’s profit & loss for the contract being displayed, the number of contracts open, and a net liquidation value (account value at market).
These tools make entering orders using a DOM ideal for daytraders because it offers fast, convenient, and reliable trade execution. Position or swing traders, however, might find the practice more of a hassle than a time-saver. This is because DOM windows are only useful for placing orders at prices near the market; this is because distant prices are not displayed in a DOM, thus requiring substantial scrolling to locate the desired price. Similarly, most DOM panels place day orders by default; traders interested in placing GTC (good ’til canceled) orders must take additional steps, which is an unnecessary burden for position traders.
In my view, position traders should avoid using a DOM; instead, they should enter orders via a standard order entry window or directly from the chart (if that’s supported by the platform being used). Like DOMs, most platforms offer traders the ability to place orders directly from a price chart with a simple point & click along with drag & drop order modification. Because price charts can be adjusted to an appropriate time frame for position traders, such as a daily chart, this is a much more efficient means of entering orders.