An implied order is an order CME Globex identifies as existing in A) the spread market based on orders in the outright market (referred to as IMPLIED IN) OR, B) an order CME Globex identifies as existing in the outright market based on orders in the spread market (IMPLIED OUT).
The following examples show how implied orders are constructed in one market based on orders in another.
This brief video introduces the way implied functionality provides liquidity across markets.
Example: Implied IN Orders
Implied IN spread orders derive from existing outright orders in individual legs. Below is an example for an implied bid in a spread created from outright orders (known as an implied IN order).
(i = implied order)
In this scenario, the Ask for 10 in September at 9500 and the Bid for 5 at 9450 in December create an implied Ask at 50 for 5 in the Sept-Dec spread order book.
Example: Implied OUT Orders
Implied OUT outright orders are derived from a combination of an existing spread order and an existing outright order in one of the individual underlying legs. These two orders are used to create a contingent outright order on the other underlying leg of the spread. The following is an example for an implied bid in an outrgiht order book (known as an implied OUT).
(i = implied order)
In this scenario, the Ask order in Sept-Dec spread for 5 at 50 (i.e., simultaneously sell 5 September contracs and buy 5 December contracts) and the Bid order in December for 5 at 9450 create an implied Ask order in the September order book for 5 at 9500.
Stop-Limit Orders for Implied-Eligible Instruments
The processing of stop-limit orders is slightly different for Implied-enabled instruments. After a stop-limit order is triggered, it is treated as a newly arriving limit order. It can be executed at all price levels better than or between the trigger and the limit prices. This behavior differs from the processing of non-implied instruments, which are executed only at price levels between the trigger and the limit prices.
Additional Implied Functionality Topics
The following topics contain more information on this topic: