Quick Answer
A market order guarantees execution but not price; a limit order guarantees price but not execution. Buy limits and sell stops sit below the market; sell limits and buy stops sit above it. Firms owe best execution, short sales need a locate under Regulation SHO, and circuit breakers halt trading at 7%, 13%, and 20%.
The whole unit on one sheet: how each order type controls price, where it sits relative to the market, and the execution rules the exam loves.
Order Types at a Glance
- Market order: immediate execution at the best available price. Guarantees execution, not price (fast markets cause slippage).
- Limit order: executes only at a specified price or better. Guarantees price, not execution.
- Stop order (stop-loss): becomes a market order once the stop price is hit. Once triggered, no price guarantee.
- Stop-limit order: becomes a limit order once triggered. Two prices (stop trigger + limit); may never fill if price blows past the limit.
Which Side of the Market
- Buy limit: below market (buy cheaper).
- Sell limit: above market (sell higher).
- Sell stop: below market (protect a long position).
- Buy stop: above market (protect a short position / breakout entry).
- So buy limits and sell stops are both below; sell limits and buy stops are both above.
The One-Liners That Win Points
- Market = execution certainty, no price. Limit = price certainty, no execution.
- Stop becomes a market order; stop-limit becomes a limit order (avoids price risk, adds execution risk).
- Day order is the default time-in-force if none is specified.
- Fill-or-kill (FOK): all, immediately, or nothing. Immediate-or-cancel (IOC): immediate, partial fills OK. All-or-none (AON): full fill, but can wait.
- A firm quote is binding; refusing to honor it is backing away, a violation. A subject quote can still be changed.
- Best execution applies whether the firm acts as agent or principal, and the duty is non-delegable.
- A short sale locate must happen before execution, not after.
- Penny stock = equity under $5 per share that trades over-the-counter (OTC) and meets no exemption.
Numbers to Lock In
| Item | Value |
|---|---|
| Penny stock price ceiling | below $5 per share (OTC, no exemption) |
| Market-wide circuit breaker levels | 7% (Level 1), 13% (Level 2), 20% (Level 3) |
| Level 1 / Level 2 halt duration | 15 minutes (no halt at or after 3:25 PM ET) |
| Level 3 halt | rest of the day, any time |
| Alternative uptick rule trigger | stock declines 10% or more from prior day's close |
| Uptick rule duration | rest of that day plus the next trading day |
| Limit Up-Limit Down pause | 15-second recovery window, then 5-minute pause |
| Short sale fail-to-deliver close-out | beginning of trading on T+2 |
| Long sale / market-maker fail close-out | beginning of trading on T+4 |
| Regular and rigorous best-execution review | at least quarterly |
| Form ATS filing | at least 20 days before operations |
Memory Aid: Stop Order Placement
- Stop orders are placed on the "wrong side" of the market compared to limits. Sell stops go below (to catch falling prices); buy stops go above (to catch rising prices).
Top Gotchas
- A stop order does not guarantee a price. Once triggered it fills at the next available price, which can be far from the stop in a gapped market.
- FOK and AON both require a complete fill, but only FOK is immediate; AON can sit and wait.
- IOC and FOK both require immediate execution, but only IOC accepts partial fills.
- A not-held order is not discretionary: the customer still picks the asset, action, and amount; only time and price are the broker's call.
- Best execution is not just the best price; it weighs speed, likelihood of execution, and total cost. Payment for order flow is allowed but demands heightened scrutiny.
- Interpositioning a third party is only allowed if it gets the customer a better price.
- The uptick rule triggers off the prior day's close, not the current open, and once active, shorts must execute above the national best bid.
- Market-wide circuit breakers halt only on declines; Limit Up-Limit Down triggers on moves both up and down.
- Hard-to-borrow securities need an actual pre-borrow arrangement; a general locate is not enough. The same is true once a firm lands in the penalty box after failing to close out a fail-to-deliver.
- Trade shredding (splitting an order primarily to maximize the firm's rebates or payments) is prohibited; the test is the firm's purpose, not the result.
- Penny stock rules require both quotation disclosure and compensation disclosure (firm and salesperson) before executing.
One-Breath Recap
Market orders guarantee execution but not price, and limit orders do the reverse; buy limits and sell stops sit below the market while sell limits and buy stops sit above it. Firms owe non-delegable best execution as agent or principal, short sales need a locate before execution under Regulation SHO, and market-wide circuit breakers halt trading at 7%, 13%, and 20% declines. Lock in the placement logic and the numbers, and this unit answers itself.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Order Types and Execution unit for the complete lesson.