Trading
Domain 3 tests order execution and trading mechanics: how orders are ranked, how contract specifications shape P&L, and how costs and liquidity change a trade's economics.
Core rules
- Price-time priority applies: better price first; at the same price, earlier order first.
- A market order seeks immediate execution at the best available price but carries slippage risk. A limit order executes at the limit or better but may not fill. A stop order becomes a market order when the trigger trades; a stop-limit becomes a limit order.
- Tick size, contract size and lot size determine minimum price movement and P&L. Long one contract gains (exit − entry) × contract size; short gains the reverse.
- Trading requires margin, position limits and price limits. Illiquid markets widen bid-ask spreads; the spread is a real cost.
Worked example
Buy 5 futures contracts, contract size 100 units, at PKR 250.00. Tick 0.05. Commission PKR 40 per contract per side. Initial margin PKR 25,000 per contract. Notional = 5 × 100 × 250 = PKR 125,000. Opening commission = 5 × 40 = PKR 200. If sold at 252.00, gross P&L = 5 × 100 × 2 = PKR 1,000; net = 1,000 − 400 round-trip commission = PKR 600 before margin funding. A one-tick adverse move = 5 × 100 × 0.05 = PKR 25, so 10 ticks of slippage costs PKR 250.
Traps
- Confusing stop and stop-limit: a stop-limit may not fill in a gap.
- Ignoring commission, exchange fees, slippage and margin funding.
- Calculating P&L per contract but forgetting contract size.
- Using a market order in a thin contract and then blaming the broker for price impact.