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Be careful with the electronic trade

Agriculture.com Staff 01/04/2008 @ 1:42pm

On Friday, December 28, soybean futures began to slide as the closing bell approached, indicating small losses in the futures trading pit.

However, on the electronic trade, otherwise known as the side-by-side trade, prices took a significant drop in the last minutes of trade as a large sell order was elected. This in turn pushed electronic prices lower in order to find buy tickets to fill the other side of the offer.

What ensued was a wild price drop as the electronic trade closed over 40 cents lower, while the pit prices finished the day near 8 cents down.

What was learned? First, if you are using a stop order on the electronic trade, you should be aware and recognize that there is no human intervention. If the market trips this order, the computer will match it up with the opposite type order.

Theoretically, you could be filled at either limit-down or limit-up, depending on your type of order. If volume is light at any given moment, big price changes may occur.

The way of the world seems to be trending more toward electronic with the potential that pit-traded commodities may one day not exist. There are positive merits to electronic trade, but the lesson learned from Friday's massive electronic trade washout is that a thorough understanding of how electronic orders work is necessary before you use this market to make transactions.

Simply put, you need to be an expert or hire one who can keep you out of trouble.

On Friday, December 28, soybean futures began to slide as the closing bell approached, indicating small losses in the futures trading pit.

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