StockSpain

By Timothy Sykes , a former hedge fund manager. who rites the blog timothysykes.com.

While this is a very basic topic, it’s crucial to understanding how to make money trading stocks. Since 90% of traders are known losers, it’s obvious that elementary lessons like this are essential nonetheless.

When you enter an order to trade a stock, your broker gives you the option of either buying, selling, selling short or buying to cover using a market order, meaning an order that will be executed at the current market price, or a limit order, which is an order that will be executed only at a price at or better than the price you specify.

In a decade of incredibly active trading, I’ve never used a market order - not even once - preferring instead to use limit orders. Because I’ve never wanted to buy or short sell a stock badly enough to be willing to throw my money into the ring without carefully considering the price I’d pay for that stock.

Don’t get me wrong, I’ve made plenty of bone-headed trades on stocks I had no business trading in the first place. But even then, I never questioned using limit orders.

It comes down to trade management

Forget about wild price swings of several dollars per share, often times the difference between success and failure on a trade comes down to execution - meaning how close your actual entry and exit points are to your expected price points.

Since it costs the same to use a market or limit order (forget about adding or removing liquidity from a market, that’s a topic for another time), why even risk your execution getting away from those price points when you use a market order? After all, that is what you’re risking when you choose a market order over a limit order and the only people I know who follow that dangerous route are those whose trading is influenced by their emotions.

If a trade is based on hype or greed, you want to get in or out of a stock immediately- no ifs, ands, or buts. No matter how perfect a chart setup, a company’s fundamentals, or breaking news is that you must be wary of getting bad fills at all cost. Traders must learn to ignore these emotions and focus on getting the best prices possible in order to give yourself the best chances at profiting.

Now I know what many of you are thinking - you never worry about this because you’re trading the world’s most actively traded companies, stocks like Intel (INTC | Quote | Chart | Chart | News | PowerRating) and Citigroup (C | Quote | Chart | Chart | News | PowerRating), where the spread (the difference in price between the bid and ask) seems permanently fixed at only a penny or two per share. Well, as improbable as it may seem, sometimes important company, industry or market news is released the very second you place your order, greatly influencing a stock price in either direction, and if you use a market order you may find yourself with a very poor execution.

And while the chances of that happening are slim, it’s even more common for brokers and market makers to take advantage of your desperation for a trade execution and fill your order at a slightly worse price; costing you anywhere from hundreds to thousands or even tens of thousands of dollars depending on the size of your order.

For me, when I buy or sell short a stock, it isn’t about what I think the company is truly worth - my opinion is meaningless. What matters is what others think and what price they’re willing to pay based on that thinking.

By using limit orders, I ensure a satisfactory execution. And, if none or only some of my order executes - as often times stocks run too hard and too fast, blowing past my limit price - then it’s probably for the best because experience has taught me not to chase stocks. Obviously buying to cover into a short squeeze is an altogether different animal - on those you need to get out as soon as possible - so I just place my limit far above the current price, still cautious not to wildly overpay or open myself up to getting taken advantage of by many of Wall Street’s nefarious players.

And, of course many people don’t trade the most active stocks. Instead they look for an “edge” or better odds in less popular names. Maybe they focus on stocks like True Religion Apparel (TRLG | Quote | Chart | Chart | News | PowerRating) or Third Wave Technologies Inc. (TWTI | Quote | Chart | Chart | News | PowerRating), since both are currently breaking out to new 52-week highs, and in these cases it’s even more important to use limit orders because the price spread can range anywhere from $0.03 to $0.40 per share.

No matter how small or large your order is, the difference between a good and poor execution is no longer just an afterthought: now we’re talking 1, 2 and 3% price swings.

Perhaps most importantly are the two key advantages to using limit orders, good-till-canceled (GTC) orders, and using the greed/impatience of others to receive better fill prices.

GTC orders

Since you’ve designated a certain price for your order, you have this option to keep your order open for 30-90 days, depending on the brokerage firm. In essence, you’re letting the price come to you so you’re not forced to limit your timeframe to just one trading day, as those who place market orders do.

And even better, since many specialists, market makers and other traders have the mindset of raking in steady profits and commissions, if you display some added patience and place your limit order aggressively, meaning your order price is not close to the current market price, the chances of it executing are slim. But you might just catch one or more of these market players asleep or in a bind.

Stop losses can get taken out and push the price to your limit, or other traders may wind up needing to use their capital elsewhere, or they may just want the commission from the trade execution. Either way, you get executed at your aggressively priced limit. And that execution price is truly ideal because you weren’t rushed as so many others in this industry are. Achieving ideal entry and exit points dramatically increases your odds of trading successfully.

So, demand more from yourself whenever you place a trade. Be disciplined, be cautious, and be wary. Thinking this way will surely cost you a few missed opportunities, but the money saved over time from minimizing poor executions and emotionally charged trades will make it well worth your while.

MFAO, based in Spain, is the only market in the world where futures contracts on olive oil can be traded.

The market, which was created four years ago, has been mainly used by olive growers to protect themselves against price swings. Olive oil prices are exceptionally volatile, so both growers and producers have an incentive to use futures in order to hedge against price fluctuations. However, MFAO wants to go further, and it is now planning to attract speculative investment by major financial institutions.

MFAO already counts with two important members trading from their screens: Banco Popular and savings bank La Caixa. Besides, they are in talks with “giants” such as Banco Santander, BBVA and JPMorgan, as well as the London desks of commodities traders.

But whether the big financial players are ready to start trading olive oil futures is still uncertain. Financial institutions demand liquidity, so volume needs to increase dramatically if the market wants to avoid the way of the Spanish citrus fruits futures market, which was abandoned not long after being set up back in 1995.

Spain is the world’s biggest olive oil producer, accounting for 40% of the 2.5 million tonnes produced worldwide every year. Yet, there is little MFAO will be able to do if strong competitors, such as Chicago’s Board of Trade, decide to emulate their initiative before it manages to establish their market.

Link: http://www.mfao.es (the site has an English version).

Luis Portillo, who is the major shareholder of Inmobiliaria Colonial, has agreed to transfer part of his stake to banks in order to repay debt.

Former Chairman Luis Portillo transferred 149.7 million shares, which account for 9.2 percent of the company, to Banco Popular, according to a regulatory filing released today. He also gave up 88.8 million shares (5.4 percent of the total) to La Caixa, 54.8 million shares to Caja de Ahorros de Galicia, 45.3 million to Bancaja and 7.5 million shares to Bankinter.

Colonial was suspended from trading in Madrid today, something which has already occurred eight times in 2008. The company has lost 75% of its market value in just six months as sales swindled and banks called in loans to Portillo, who left the company in December. Colonial owes 8 billion euros ($12 billion) to banks including Goldman Sachs, Royal Bank of Scotland and Credit Agricole.

The stock last traded at 88 cents, giving Barcelona-based Colonial a market value of 1.4 billion euros. The drop in the company’s value attracted takeover interest from Investment Corp. of Dubai and General Electric Co., but in the end there was no agreement between them on the value of the company.

At present time, Spanish house prices are falling in real terms, something that have not been experienced for more than a decade. The average price of houses and apartments rose 4 percent in the first quarter from a year earlier, less than March’s 4.6 percent rate for consumer price inflation, according to a Housing Ministry’s statement released on April 18.

Repsol YPF, the owner of 25% of the Carioca oil field offshore Brazil, had a record gain in Madrid trading after the Brazilian authorities said the field is probably the largest oil discovery in the last three decades, and the third-largest ever drilled.

Repsol rose as much as 3.25 euros, or 14 percent, to 26.75euros, the biggest increase since the company sold shares to the public in January 1990. It closed the day at 25.68 euros, a 9.277% increase that erases all Repsol’s stock losses for 2008.

Petrobras, the Brazilian oil giant who owns 45% of the project, said yesterday that more investments are required to drill new wells, and conclusive data on the discovery’s potential will only be known after the other phases involved in the assessment process have been completed. Petrobras shares soared more than 8% in yesterday’s New York trading.

The remaining 30 percent of the project, is hold by BG Group Plc, the U.K.’s third-largest natural-gas producer, BG shares gained as much as 103 pence, or 8.4 percent, to record 1,325 pence in London trading. It closed 5.810 up to 1293 pence.

Pescanova SA, Spain’s largest fish processor, gained as much as 12 percent in Madrid trading after Spanish newspaper “El País” reported that two people have recently died in the country from so-called mad cow disease. The report has been confirmed by the health ministry. This is the first victim of mad cow disease since 2005.

The shares added as much as 3.85 euros to 36.49 euros, their biggest one-day percentage increase in 5 years. The stock was up 7.23 percent at 35.00 euros at closing (5:35 p.m. local time).

Further increases can be expected if more cases are detected in the future, as scared people shift away from meat consumption to its most obvious substitute. However, it is important to bear in mind that even though previous similar news have also had a positive impact on the price of the stock, as it ocurred with bird-flu occurrances, they have never actually had a significant impact on the comnpany’s earnings results.