11.3 Order Types and Execution

Market Orders

A market order instructs the broker to buy or sell immediately at the best available price. It guarantees execution but not price—a key Series 7 distinction. Use it when speed matters more than the exact fill, typically in liquid securities. In a thin or fast-moving market, the fill may differ meaningfully from the last print (slippage).

Limit Orders

A limit order sets a price boundary: a maximum to pay (buy) or a minimum to accept (sell). It guarantees price-or-better but not execution.

Example: Stock at $50; a buy limit at $48 executes only at $48 or lower. A sell limit at $52 executes only at $52 or higher. A limit order can be missed entirely if the stock never reaches the limit.

Stop Orders

A stop order (stop-loss) is dormant until the stop price is touched; it then becomes a market order. Because it converts to market, the execution price can be worse than the stop in a gap.

Example (sell stop): You own stock bought at $50 and place a sell stop at $45. If the price falls to $45 (the trigger), the order elects and sells at the next available price—maybe $44.90, maybe $45.10.

Example (buy stop): You are short at $50 and place a buy stop at $55. If the price rises to $55, the order elects and buys to cover, capping the short loss.

Stop-Limit Orders

A stop-limit combines both: a stop price triggers the order, which then becomes a limit order rather than a market order. A sell stop at $45 with a $44 limit triggers at $45 but will only fill at $44 or higher. The benefit is price protection; the risk is non-execution if the price slices through the limit too fast.

BLiSS and SLoBS

The placement memory aids are heavily tested:

• BLiSS — Buy Limit, Sell Stop — entered BELOW the market.
• SLoBS — Sell Limit, Buy Stop — entered ABOVE the market.

Time-in-Force Designations

The FOK-vs-AON distinction is a favorite: FOK demands the whole order right now; AON demands the whole order but allows partial waiting, just never a partial fill.

Ex-Dividend Adjustments and DNR

On the ex-dividend date, the exchange reduces resting orders below the market by the dividend amount, because the price typically drops by roughly the dividend. The orders adjusted are the BLiSS orders (buy limit and sell stop).

Example: A buy limit at $35 with a $0.50 cash dividend going ex becomes a buy limit at $34.50. Marking the order DNR (Do Not Reduce) keeps it at $35. Note: orders above the market (sell limit, buy stop) are not reduced, and stock dividends/splits adjust orders regardless of DNR.

Best Execution

A broker-dealer owes a best-execution duty: route customer orders to obtain the most favorable terms reasonably available. Factors include price (paramount), speed, likelihood of execution, and size. A not-held order grants the floor broker time-and-price discretion, so the broker is not held responsible for missing the market on that order.

Reduction Rules in Detail

The ex-date reduction only applies to cash dividends and only to orders below the market (BLiSS). For stock dividends and stock splits, the exchange adjusts the price and the share quantity of every open order—including those above the market—and DNR does not block these adjustments. Example: a buy limit for 100 shares at $60 ahead of a 2-for-1 split becomes a buy limit for 200 shares at $30. Distinguishing cash-dividend reductions (blockable with DNR) from split adjustments (not blockable) is a classic Series 7 item.

Order Display and Triggering Nuances

A stop order is not displayed in the public quote until it is elected, because it is a conditional instruction, not a live bid or offer. Once the stop price prints (a trade at or through it), the stop "elects" and becomes a market order. A stop-limit elects into a limit order, so it can sit unfilled if the market gaps past the limit—an important distinction when a customer asks for both downside protection and price control.

Common Exam Traps

• Market order = execution guaranteed, price not. Limit order = price-or-better guaranteed, execution not.
• BLiSS (buy limit, sell stop) is below the market; SLoBS (sell limit, buy stop) is above it.
• A triggered stop becomes a market order, so the fill can be worse than the stop price in a fast market.
• FOK = entire order immediately or kill; IOC = take what you can now, cancel the rest; AON = entire order but may wait.
• Only buy limit and sell stop orders are reduced on the cash ex-date; DNR blocks that, but never blocks split adjustments.
• A day order is the default time-in-force if the customer says nothing.