Order Types and Execution

Understanding different order types is essential for Series 7 representatives. Each order type serves a specific purpose and executes under different conditions.

Market Orders

A market order is the simplest order type—it instructs the broker to buy or sell immediately at the best available price.

Key Point: Market orders guarantee execution but not price. Use when getting in or out quickly is more important than the exact price.

Limit Orders

A limit order sets a maximum price for buying or minimum price for selling.

Buy Limit Orders

Buy limit orders are placed BELOW the current market price.

Example: Stock at $50, buy limit at $48 executes only if price falls to $48 or lower.

Sell Limit Orders

Sell limit orders are placed ABOVE the current market price.

Example: Stock at $50, sell limit at $52 executes only if price rises to $52 or higher.

Stop Orders

Stop orders (also called stop-loss orders) become market orders when a trigger price is reached.

Sell Stop Orders

Sell stop orders are placed BELOW the current market price to protect long positions.

Example: Own stock at $50, place sell stop at $45. If price drops to $45, order triggers and sells at market (could be slightly above or below $45).

Buy Stop Orders

Buy stop orders are placed ABOVE the current market price to protect short positions.

Example: Short stock at $50, place buy stop at $55. If price rises to $55, order triggers and buys at market to cover short.

Stop-Limit Orders

A stop-limit order combines features of stop and limit orders—it triggers at one price but only executes at a specified limit or better.

Example: Sell stop-limit at $45 stop, $44 limit

• Triggers when price falls to $45
• After trigger, becomes limit order at $44
• Only executes at $44 or higher

Risk: May not execute if price moves too quickly through the limit.

Memory Aids: BLiSS and SLoBS

BLiSS (Buy Limit, Sell Stop)

All BLiSS orders are placed BELOW the current market price.

• Buy Limit
• Sell Stop

SLoBS (Sell Limit, Buy Stop)

All SLoBS orders are placed ABOVE the current market price.

• Sell Limit
• Buy Stop

Order Summary Table

Time-in-Force Designations

Special Order Instructions

Do Not Reduce (DNR)

By default, buy limit and sell stop orders are reduced by dividend amounts on ex-dividend date. DNR prevents this adjustment.

Example: Buy limit at $50. Stock goes ex-dividend for $1. Without DNR, order adjusts to $49. With DNR, order stays at $50.

Not Held Orders

Not held orders give the floor broker discretion over timing and price. The broker is "not held" responsible for missing the market.

Best Execution

Broker-dealers have a best execution obligation to seek the most favorable terms reasonably available for customer orders.

Best Execution Requirements

• Consider price improvement opportunities
• Evaluate multiple market centers
• Review execution quality regularly
• Document order routing decisions

Order Routing Considerations

On the Exam

The Series 7 exam frequently tests:

• Where limit and stop orders are placed relative to market
• BLiSS and SLoBS memory aids
• The difference between stop orders and stop-limit orders
• Time-in-force designations
• Ex-dividend adjustments and DNR