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What is Trading?
What is a
Contract?
How does pricing work on the Exchange?
What is Bid and Ask?
How does a contract Expire?
How and why are daily close prices
set?
If I think a certain outcome WILL
occur, how do I look to profit from that?
If I think a certain outcome WILL
NOT occur, how do I trade it?
How can I sell a contract I don't
already own? /
Can I short sell?
What is short Selling?
How do I place an order?
How are orders executed?
What if I make a mistake?
How will I know when my order
is filled?
Can I cancel an order?
How do I calculate my potential
profit/loss on a particular trade?
What is the role of the Exchange?
Am I guaranteed the current
displayed price when I place an order?
Where do I view my orders and
positions?
Where can I learn about common
trading terms?
How
long is my order valid for?
What type of orders can
I place?
Is there any situation where
an order may not be executed?
Where can I get more help
with Trading Issues?
What is Trading?
Trading is defined as buying and/or selling of a contract.
People enter into trades in the hope of making a profit. In simple terms
a trader will make a profit if he/she sells a contract at a higher price
from where he/she bought it.
"Buy Low, Sell High"
.
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What is
a Contract?
A contract may be considered similar to a share. A contract
is an exchange-standardised agreement between the parties to the trade based
on the outcome of a specified event.
Every contract has a minimum & maximum price range.
Within the minimum and maximum the price of the contract can vary and the
minimum increment of change is known as a tick. Every tick has a US$ value.
A contract will have a set tick size and tick value.
For details
on the Contract Specifications click on the contract symbol (e.g.
DOW.02FEB.HIGHER
)
for a pop-up window that includes information like the following:
0-100 Contract:
The maximum
value of one contract is $10, so a price of 30 represents $3.00. Buying
1 contract risks $3 as the contract may expire at the end of the event
on which it is based at 0, which means the contract is worthless for a
buy position.
If you want to risk more than $3 at this price just buy more contracts
eg Buy 20 contracts at 30, risking $60.
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How
does pricing work on the Exchange?
Zero to One Hundred (
0-100
) pricing is used for the majority of
contracts on the Exchange.
Prices are quoted 0-100, which is in effect a percentile representation
of the likelihood of a specific outcome or the probability of something
actually happening.
Example
For the 2004 US Presidential elections the Exchange listed a 0-100 contract
for George Bush to be re-elected as President. In July 2004, the contract
was trading at a price of 50-53.
The BID price of 50 is where members are willing to BUY the likelihood
of Bush winning.
The ASK (offer) price of 53 is where members are willing to SELL the likelihood
of Bush winning (Selling Bush to win is the same as buying Kerry to win).
If your opinion is that George Bush will win, you would buy a contract
at the best available price of 53. For each 1 contract (or 1 lot) you
buy you are risking $5.30 to make $4.70 as the maximum value is $10 per
contract.
Alternatively if you thought George Bush would NOT win ie John Kerry would
win, you would SELL the contract at the best available price of 50
Here you are risking $5 to make $5 for each 1 contract you sell.
In this example the event did in fact occur (GW Bush was re-elected) and
so the contract expired at a value of 100.
This meant if you had bought the contract at 53 you would make a profit
(100-53)*$0.10 = $4.70 for every contract you bought.
If you sold the contract at 50 you would have made a loss of $5 or (final
price of 100 less where you sold it at 50) *$0.10 = $5
The amount
you risk on a trade, or the money terms of a trade is based on the price
of the contract and the number of contracts traded.
Multiply
the price of the contract by the tick value of $0.10 and the number of
contracts bought or sold.
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What
is Bid and Ask?
The
Bid Price
is the price a potential buyer is willing to pay
for a contract. You can sell to this price now.
The
Offer/Ask
Price
is the price at which a seller is willing to sell the contract.
You can buy at this price now.
The Bid and Ask displayed on the market data screen will be the best bid
(ie highest bid) and best offer (ie lowest offer).
If you wish
to immediately
BUY
a contract you should make your BUY price equivalent
(or higher) to the current best offer price - ie pay the Ask for that
contract.
If you wish
to immediately
SELL
a contract you should make your SELL price
equivalent (or lower) to the BID price - ie hit the BID for that contract.
When you
BUY a contract you hope that stated outcome will occur ie a 100 expiry
price.
When you SELL a contact you hope that stated outcome will fail to occur
ie a 0 expiry price.
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How
does a contract Expire?
The Exchange will expire a contract based on the outcome of the underlying
event.
For individual Contract Rules click on the Rules tab at the end of every
page on the site. Select Contract rules and read the information pertaining
to a specific type of contract.
Choose Exchange Rules for general information on our expiry process.
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How
and why are daily close prices set?
Close prices are set daily by the Exchange to reflect the market value
of a contract. The close price is used to mark accounts to market and
this affects variation margin.
Recent trade prices and open orders are usual
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If
I think a certain outcome WILL occur, how do I look to profit from that?
If you think a certain outcome will occur you should buy the contract.
If you are correct and the stated outcome does happen the contract will
expire at 100. You will make a profit of the expiry price (100) less your
purchase price (say, 50) time $0.10 times the number of contracts you
bought.
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If
I think a certain outcome WILL NOT occur, how do I trade it?
If you think a certain outcome will fail to happen you should SELL that
contract.
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How
can I sell a contract I don't already own? /
Can
I short sell?
The Exchange permits members to go
"short"
i.e. selling
the contract before you own it.
If you SELL 5 contracts before you buy any contracts you will have a net
short
position ie you will own minus 5( -5) contracts.
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What
is short Selling?
This is when a member sells a contract to create a net short position
which will be denoted under positions with a negative sign eg -5.
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How
do I place an order?
Contracts may be found by clicking on the Trading Screen or All Events
tabs. Click on the 
link next to any contract symbol to gain access to the order ticket and
current order book for that contract.
To place an order you may manually type in the quantity and price you
wish to trade at.
For faster order ticket population, you may click on the best Bid/Ask
in the Market Data screen and this will pre-populate the price field on
the order ticket.
Set your default order size for even faster order ticket population or
alternatively click on the current Bid/Ask quantity if you wish to buy/sell
all contracts offered at that price.
There is a comprehensive demonstration to help you trade using the Exchange
site. Click on the Demo link to the upper left of the Home page.
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How are orders executed?
The Exchange matching engine matches orders on a strict price and then
the time priority of entry basis. Orders entered at the same price are
added to the book in the order in which they are received. Those entered
first have priority over those entered later.
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What if I make a mistake?
You may cancel all unmatched (open) orders. Once your order is matched,
you have traded with another member. A member is liable for all orders
and trades, whether intended or mistaken.
In extreme cases of a gross unrepresentative price trading, upon notification
the Exchange may unwind such trades. See Contract Rule 1.2 for details
on this.
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How
will I know when my order is filled?
The Exchange sends notification of all fills. These notifications can
be seen by clicking on the Messages link in the Trading Screen, where
members may also check the status of all orders and positions. Additionally
you can set up notifications to have your matched traded emailed to you
or even delivered by way of text / SMS message to your cell phone.
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Can I cancel an order?
Yes, you may cancel any and all unmatched (open) orders. To confirm if
your order has been successfully cancelled, check your order status on
the lower half of the Trading Page.
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How do I calculate my
potential profit/loss on a particular trade?
To calculate your potential profit on a particular trade, you can click
on the link in the order ticket, "
How much will this cost
"
Alternately, to calculate your potential P/L do the following:
1. Get your
average position price.
2. How much you make if it expires at 100 or 0
Get your average price, multiplied by number of contracts you are holding.
Either add or subtract this number from 0 or 100 depending on whether
you are net long or net short the contracts. Then multiply by tick value
($0.10USD).
Eg Long 25 lots at 47.5
Potential Profit = 100-47.5 ( 25*0.10) = $131.25
Potential Loss = (47.5*25)*0.10 =$$118.75
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What is the role of the
Exchange?
The Exchange facilitates trading by matching orders from its members.
Additionally, the Exchange fulfils a "clearing house" function
by implementing margining, administrating payments and maintaining member
accounts. The Exchange ensures that trading profits and losses are transferred
between members in a timely manner and allows members to close out positions
by trading with any other member.
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Am
I guaranteed the current displayed price when I place an order?
No, before your order reaches the exchange, another member may have already
matched against / traded with that order displayed.
Alternatively, the member who placed the order may cancel that current
displayed price. You should always check your messages and order status
on the Trading Screen to see if your orders have been matched.
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Where do I view my orders
and positions?
All orders and positions may be viewed by clicking on the Trading Screen
tab.
Beneath the market Data you may use the tabs to check on your orders and
positions.
Also here you can view your potential risk/reward on the particular position
or order by clicking on the tab labelled Margins.
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Where can I learn about common trading terms?
The Exchange provides a comprehensive glossary defining both general financial
terms and The Exchange-specific terms.
The full glossary is available in the help section.
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How long is my order
valid for?
The exchange gives you many options on how long you may leave an order
valid for.
A GFS (Good for Session) order is valid until the end of that trading
session. Trading sessions end normally at 2:15 a.m. ET each day but is
subject to change. Notice of any changes are posted in the Exchange News
on the homepage.
A GTC (Good-Til-Cancel) order is valid until the member cancels the order,
the order is filled or the contract is expired.
A Custom Time for the order to be cancelled may also be chosen by you
when placing your order by selecting the Advance Order Ticket.
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What
type of orders can I place?
-
Limit
Orders
- An order that specifies to buy or sell an amount
of a contract at a particular price or at a better price, but
never at a worse price
-
Stop-Limit
orders
- An order that becomes a limit order once the
contract trades at the designated stop price.
Both of which may be placed as GFS (Good For Session) or GTC (Good
Til Cancel) or to be cancelled at a Custom Time.
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Fill-or-kill
orders
are also permitted.
The Exchange does not accept market orders.
For more information on these terms see the glossary in the help
section.
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Is
there any situation where an order may not be executed?
Yes, your order will not be accepted if you have insufficient funds to
cover any losses that may occur.
Also there may be an insufficient volume of orders at the same price (or
better) on the opposite side of the book.
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Where
can I get more help with Trading Issues?
Should you require a one-to-one tutorial please call or email the Exchange
to schedule a session with our Exchange Representatives.
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