Implied Orders

An implied price is a futures 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).

First generation implied orders are created at prices sufficient to trade. If these first generation implied orders are not at a large enough quantity to fill an arriving order, then CME Globex builds second-generation implied orders until the quantity of the arriving order is completely satisfied.

The following examples show how implied orders are constructed in one market based on orders in another.

Implied Overview

This brief video introduces the way implied functionality provides liquidity across markets.

Part 1

Part 2

This brief video provides a more complex scenario to illustrate how 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 (known as an implied IN order).

In this implied IN example, a quantity of 10 spreads are available from the 74150 bid in September 2011 (QMU1) to spread against the 75500 offer in the October 2011 ask (QMV1) to create the two legs of quantity 10 in an implied bid for the Sept-Oct. 2011 spread (QMU1-QMV1).

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 a leg (known as an implied OUT).

In this implied OUT example, the 10 quantity of the Sept-Oct. 2011 spread (QMU1-QMV1) to create bid for 10 contracts in the October 2011 outright (QMV1) implies a bid quantity of 10 in QMV1.

Because the CME Globex system can process orders sequentially in an entire group, both of these implied quotes can be displayed at the same time. If an order arrives to trade with one of the implied quotes, the executed trade will cause the other implied quote to be eliminated.

When an implied spread order is filled, multiple execution reports are returned to the client for each fill. One execution report is sent for the implied spread with the CME default account as the counterparty and one execution report is sent to each counterparty per leg in the spread.

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: