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Introduction
1. Supervision
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3.1 Communications
3.2 Additional communications
3.3 Accounts
3.4 Orders and confirmations
3.4.1 Orders
3.4.2 Confirmations
3.5 KYC, objectives, and suitability
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3.4.1 Orders
Achievable Series 10
3. Client issues
3.4. Orders and confirmations
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Orders

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Types of Orders

Day order

Day orders are the simplest of all orders. They will expire at the end of the trading day they are put in if they are not executed before them.

Good-til-canceled (GTC)

GTC orders will stay on the books of the broker-dealer until it is filled, or until they would automatically expire the last trading day of April and the last trading day of October, unless extended. The customer can extend it upon request, though in most cases will simply rewrite it. Some brokers may have shorter GTC periods, as often if the GTC order hasn’t placed within a month or 2, the customer will want to reassess and create a new one.

Market Order

Market orders are built for speed. They will execute at the next price, which could be higher or lower than the current price, as it is a first-come, first-served process. The order books have lots of people, and the orders get filled on a first-in-first-out (FIFO) basis; the oldest order will be filled first, the newest order last. Generally, it won’t be massive price differentials, outside of volatile markets, but the price could be dramatically different from when placed.

Stop order

Stop orders are conditioned on the underlying security hitting a certain price. Once that stop price is hit, then the order will become a market order. Unlike limit orders, stop orders, if triggered, will always execute, as they become a market order, and market orders will always execute. Stop orders do not care about the price paid; once it becomes a market order, the market order could execute at a higher or lower price than the trigger price of the stop order.

Stop orders are used to “stop a loss”, as in if someone has a profitable position (could be long or short), and wants to “protect” it from losing profit, they could do a stop order. Once the stop price is hit, the position will close, hopefully locking in a profit or stopping further loss.

The client purchased 1000 shares of stock years ago for $10 a share, paying $10,000 for the stock. The stock is now worth $100 a share, a pretty good pick. The client is going on a vacation, and is worried about volatility, so they could put say a “sell 90 stop”, meaning if the stock price, currently at $100, drops to $90, it would become a market sell, and sell at around 90, locking in around $80 per share profit. If the market doesn’t drop the $90, the order never triggers, the client comes back from vacation, and can take down the order.

Stop orders are also used when dealing with the technical analytical concepts of resistance and support. In technical analysis, the analysts are staring at charts and are looking for patterns. Supports are price lines where it seems the price doesn’t want to fall below. When it gets close, market forces seem to drive it up. Resistance, on the other hand, is a price line where it seems the price doesn’t want to go above, and when it gets close, market forces seem to drive it down. So the price bounces between the support and the resistance. Their belief is that if it ever goes above the resistance, or below the support, it will keep rising, or falling until it finds the next resistance, or support level.

To profit from this, someone might do a buy stop at a price slightly above the resistance price, or a sell stop at a price slightly below the support price. If the price starts rising, the investor would buy it at a price just above the current resistance, before it rises to the next resistance. If the price instead starts falling, the investor would short-sell the security right below the support, before it falls to the next support level.

Limit order

Limit orders are designed to never execute at a worse price than what the customer sets. Buy limits will not execute for a price above the limit price, just like if you wanted to “buy something at $50 or better”, you’d take $45, you wouldn’t take $50.05. Similarly, sell limits will not execute for a price below the limit price, just like if you wanted to “sell something at $50 or better”, you’d accept $55, but you wouldn’t accept $49.95.

Limit orders are a weird one, in that just because the price has been hit, it doesn’t mean it will actually execute. If the price “bounces” back into the “bad” side of the number, it won’t execute.

If there was a buy limit at $50, meaning it won’t be purchased for a price worse than $50, in this case, above $50. If the ticker was 55, 53, 54, 52, 49, 51, 55, 59, 70, 100… it would not execute. It would see the $49, but it needs 2 successive numbers. If instead it went 55, 53, 54, 52, 49, 49.99, 51, 55, 59,… the order would execute at $49.99. It sees the $49 and gets ready, and then executes at the next price better than the limit price. Sell limits would work similarly, just when going up.

Sometimes, especially if after-hours or pre-hours orders are involved, the limit order may actually be immediately placeable. If a client places a buy limit at $50, and the opening price is $49.95, the customer’s order will execute at the $49.95. This is referred to as a marketable limit order.

Stop-Limit order

Stop-limit orders, in practice, are a bit tricky; in theory, they aren’t that much trickier than stops or limits. Stop-limit, as the name implies, combines a stop order with a limit order. It is like a stop order in that there is a trigger price, but instead of a normal stop order that becomes a market order, a stop-limit order, when triggered, becomes a limit order, so it also has a limit price. The stop and the limit prices of the stop-limit order could be the same, or they could be different. It effectively will set a price band where the trade will execute, but because it has a limit order involved, just because the prices get hit, it doesn’t mean the order executes if the market doesn’t stay in that price area long enough.

Immediate-or-cancel (IOC)

This is one of the 3 orders that are closely related and easily confused. IOC, AON, and FOK all deal with whether the rep has time to execute, whether they can the do partial fulfillments, or neither of those.

Immediate-or-cancel is the one that the rep does not have time, but they can do partial orders. If a client calls early in the trading day and says “I want you to buy me 5000 shares of ABC at $50 IOC”, and all we can do is 3000 shares at $50, then the client gets the 3000 shares, and the remaining order is cancelled.

The order must be done right here right now, to the best of the rep’s ability, but if they can only get some, then the client only gets that some. There is no time, right here right now, whatever can’t be done right here right now, is canceled.

All-or-none (AON)

Another of the 3 confusing orders, All-or-none is the one that gives the representative time to fill the order, but it must be done all at once, 1 trade, no trying to group multiple orders together.

If a client calls early in the trading day and says “buy 5000 shares of ABC at $50 AOC”, the rep has all day to find those 5000 shares at $50 or better, more time if the AOC is marked GTC, but it must be done in 1 trade, or not at all. No partials, and no combining multiple transactions to get it to the total. 1 trade for 5000 shares, not 2 trades of 2,500 each, or any other combination that would add up to 5000; 1 trade.

Fill-or-kill (FOK)

The last of the 3 confusing order types, this one basically combines the other two; no time, no partials.

If a client calls early and says “buy 5000 shares of ABC at $50 FOK”, the rep must try their best to find 1 transaction that will place all 5000 shares. If the rep is only capable of finding 1 trade for 4990 shares, that is not all 5000, the entire order is killed. No partials, and just like the IOC, it must be done right here, right now, or killed.

All in 1, and immediately, no time to really look, right here, right now, all of the shares, or the entire order is killed and thrown away.

Order Priority

There are lots of orders that get placed, so there needs to be a priority to know the order to execute them. Market orders have top priority and will be executed on a first-come, first-served basis. Limit orders will follow, in priority order based on their limit price. Buy limits get priority from highest price to lowest, while sell limits get priority from lowest price to highest.

Buy limit example

If 4 buy limits were submitted with limit prices of $50, $50.50, $50.25, and $50.75, the realised priority would be $50.75 first, as they are willing to pay the most, then $50.50, $50.25, and finally $50, even though that is not the order they were received.

Sell limit example

If instead 4 sell limits were submitted with limit prices of $50.75, $50.50, $50.25, and $50, the realised priority would be $50, as they are willing to receive the least, then $50.25, $50.50, and finally $50.75, again, even though that is not the order they were received.

If identical limit-priced orders are submitted, their priority is first-come, first-served.

Closing price orders

There are 2 types of orders designed to be executed at the closing price of the session. They could be a market, or limit, as in market-on-close (MOC), or a limit-on-close (LOC). Both function similarly to their earlier discussed cousins. MOC don’t have a price, LOC does have a price and won’t execute at a worse price.

For the NYSE, the MOC and LOC orders can be placed, modified, and cancelled up until 3:50 pm ET each day. After 3:50 pm ET, the orders can no longer be placed, modified, or cancelled, outside of rare situations.

For NASDAQ, they vary. MOC can be placed, modified, and cancelled up until 3:55 pm ET each day, while LOC orders can be placed, modified, and cancelled up until 3:58 pm ET each day. After those times, again, outside the rare situations, the orders cannot be placed, modified, or cancelled.

The reasons could be that the investor suspects that there could be dramatic news released overnight, after hours earnings call, wants to make sure they exit a position by the end of the day, or similar ideas.

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Orders

Types of Orders

Day order

Day orders are the simplest of all orders. They will expire at the end of the trading day they are put in if they are not executed before them.

Good-til-canceled (GTC)

GTC orders will stay on the books of the broker-dealer until it is filled, or until they would automatically expire the last trading day of April and the last trading day of October, unless extended. The customer can extend it upon request, though in most cases will simply rewrite it. Some brokers may have shorter GTC periods, as often if the GTC order hasn’t placed within a month or 2, the customer will want to reassess and create a new one.

Market Order

Market orders are built for speed. They will execute at the next price, which could be higher or lower than the current price, as it is a first-come, first-served process. The order books have lots of people, and the orders get filled on a first-in-first-out (FIFO) basis; the oldest order will be filled first, the newest order last. Generally, it won’t be massive price differentials, outside of volatile markets, but the price could be dramatically different from when placed.

Stop order

Stop orders are conditioned on the underlying security hitting a certain price. Once that stop price is hit, then the order will become a market order. Unlike limit orders, stop orders, if triggered, will always execute, as they become a market order, and market orders will always execute. Stop orders do not care about the price paid; once it becomes a market order, the market order could execute at a higher or lower price than the trigger price of the stop order.

Stop orders are used to “stop a loss”, as in if someone has a profitable position (could be long or short), and wants to “protect” it from losing profit, they could do a stop order. Once the stop price is hit, the position will close, hopefully locking in a profit or stopping further loss.

The client purchased 1000 shares of stock years ago for $10 a share, paying $10,000 for the stock. The stock is now worth $100 a share, a pretty good pick. The client is going on a vacation, and is worried about volatility, so they could put say a “sell 90 stop”, meaning if the stock price, currently at $100, drops to $90, it would become a market sell, and sell at around 90, locking in around $80 per share profit. If the market doesn’t drop the $90, the order never triggers, the client comes back from vacation, and can take down the order.

Stop orders are also used when dealing with the technical analytical concepts of resistance and support. In technical analysis, the analysts are staring at charts and are looking for patterns. Supports are price lines where it seems the price doesn’t want to fall below. When it gets close, market forces seem to drive it up. Resistance, on the other hand, is a price line where it seems the price doesn’t want to go above, and when it gets close, market forces seem to drive it down. So the price bounces between the support and the resistance. Their belief is that if it ever goes above the resistance, or below the support, it will keep rising, or falling until it finds the next resistance, or support level.

To profit from this, someone might do a buy stop at a price slightly above the resistance price, or a sell stop at a price slightly below the support price. If the price starts rising, the investor would buy it at a price just above the current resistance, before it rises to the next resistance. If the price instead starts falling, the investor would short-sell the security right below the support, before it falls to the next support level.

Limit order

Limit orders are designed to never execute at a worse price than what the customer sets. Buy limits will not execute for a price above the limit price, just like if you wanted to “buy something at $50 or better”, you’d take $45, you wouldn’t take $50.05. Similarly, sell limits will not execute for a price below the limit price, just like if you wanted to “sell something at $50 or better”, you’d accept $55, but you wouldn’t accept $49.95.

Limit orders are a weird one, in that just because the price has been hit, it doesn’t mean it will actually execute. If the price “bounces” back into the “bad” side of the number, it won’t execute.

If there was a buy limit at $50, meaning it won’t be purchased for a price worse than $50, in this case, above $50. If the ticker was 55, 53, 54, 52, 49, 51, 55, 59, 70, 100… it would not execute. It would see the $49, but it needs 2 successive numbers. If instead it went 55, 53, 54, 52, 49, 49.99, 51, 55, 59,… the order would execute at $49.99. It sees the $49 and gets ready, and then executes at the next price better than the limit price. Sell limits would work similarly, just when going up.

Sometimes, especially if after-hours or pre-hours orders are involved, the limit order may actually be immediately placeable. If a client places a buy limit at $50, and the opening price is $49.95, the customer’s order will execute at the $49.95. This is referred to as a marketable limit order.

Stop-Limit order

Stop-limit orders, in practice, are a bit tricky; in theory, they aren’t that much trickier than stops or limits. Stop-limit, as the name implies, combines a stop order with a limit order. It is like a stop order in that there is a trigger price, but instead of a normal stop order that becomes a market order, a stop-limit order, when triggered, becomes a limit order, so it also has a limit price. The stop and the limit prices of the stop-limit order could be the same, or they could be different. It effectively will set a price band where the trade will execute, but because it has a limit order involved, just because the prices get hit, it doesn’t mean the order executes if the market doesn’t stay in that price area long enough.

Immediate-or-cancel (IOC)

This is one of the 3 orders that are closely related and easily confused. IOC, AON, and FOK all deal with whether the rep has time to execute, whether they can the do partial fulfillments, or neither of those.

Immediate-or-cancel is the one that the rep does not have time, but they can do partial orders. If a client calls early in the trading day and says “I want you to buy me 5000 shares of ABC at $50 IOC”, and all we can do is 3000 shares at $50, then the client gets the 3000 shares, and the remaining order is cancelled.

The order must be done right here right now, to the best of the rep’s ability, but if they can only get some, then the client only gets that some. There is no time, right here right now, whatever can’t be done right here right now, is canceled.

All-or-none (AON)

Another of the 3 confusing orders, All-or-none is the one that gives the representative time to fill the order, but it must be done all at once, 1 trade, no trying to group multiple orders together.

If a client calls early in the trading day and says “buy 5000 shares of ABC at $50 AOC”, the rep has all day to find those 5000 shares at $50 or better, more time if the AOC is marked GTC, but it must be done in 1 trade, or not at all. No partials, and no combining multiple transactions to get it to the total. 1 trade for 5000 shares, not 2 trades of 2,500 each, or any other combination that would add up to 5000; 1 trade.

Fill-or-kill (FOK)

The last of the 3 confusing order types, this one basically combines the other two; no time, no partials.

If a client calls early and says “buy 5000 shares of ABC at $50 FOK”, the rep must try their best to find 1 transaction that will place all 5000 shares. If the rep is only capable of finding 1 trade for 4990 shares, that is not all 5000, the entire order is killed. No partials, and just like the IOC, it must be done right here, right now, or killed.

All in 1, and immediately, no time to really look, right here, right now, all of the shares, or the entire order is killed and thrown away.

Order Priority

There are lots of orders that get placed, so there needs to be a priority to know the order to execute them. Market orders have top priority and will be executed on a first-come, first-served basis. Limit orders will follow, in priority order based on their limit price. Buy limits get priority from highest price to lowest, while sell limits get priority from lowest price to highest.

Buy limit example

If 4 buy limits were submitted with limit prices of $50, $50.50, $50.25, and $50.75, the realised priority would be $50.75 first, as they are willing to pay the most, then $50.50, $50.25, and finally $50, even though that is not the order they were received.

Sell limit example

If instead 4 sell limits were submitted with limit prices of $50.75, $50.50, $50.25, and $50, the realised priority would be $50, as they are willing to receive the least, then $50.25, $50.50, and finally $50.75, again, even though that is not the order they were received.

If identical limit-priced orders are submitted, their priority is first-come, first-served.

Closing price orders

There are 2 types of orders designed to be executed at the closing price of the session. They could be a market, or limit, as in market-on-close (MOC), or a limit-on-close (LOC). Both function similarly to their earlier discussed cousins. MOC don’t have a price, LOC does have a price and won’t execute at a worse price.

For the NYSE, the MOC and LOC orders can be placed, modified, and cancelled up until 3:50 pm ET each day. After 3:50 pm ET, the orders can no longer be placed, modified, or cancelled, outside of rare situations.

For NASDAQ, they vary. MOC can be placed, modified, and cancelled up until 3:55 pm ET each day, while LOC orders can be placed, modified, and cancelled up until 3:58 pm ET each day. After those times, again, outside the rare situations, the orders cannot be placed, modified, or cancelled.

The reasons could be that the investor suspects that there could be dramatic news released overnight, after hours earnings call, wants to make sure they exit a position by the end of the day, or similar ideas.

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