Introduction

Welcome to Order Types and Execution: the foundation of how customer instructions become completed trades in the securities markets.

Exam Weight: Part of Function 4 (11% / ~14 questions)

What You'll Learn

In this unit, you'll cover:

• Types of Orders: Market, limit, stop, and stop-limit orders and where each is placed relative to the current market price
• Time-in-Force and Special Designations: Day, Good 'Til Canceled (GTC), Immediate or Cancel (IOC), Fill or Kill (FOK), All or None (AON), Market on Close (MOC), not-held, spread, and straddle orders
• Securities Quotes: Firm, subject, nominal, and workout quotes and the obligation to honor them
• Orders, Offerings, and Transactions: Order tickets, advertised yield, and Delivery Versus Payment (DVP) / Receipt Versus Payment (RVP) settlement
• Trade Execution Activities: Exchange vs. over-the-counter (OTC) vs. Alternative Trading System (ATS) execution, dark pools, and trading halts
• Best Execution Obligations: FINRA Rule 5310, reasonable diligence, and interpositioning
• Short Sale Requirements: Regulation SHO order marking, locate requirements, and the alternative uptick rule
• Securities Lending: Hard-to-borrow lists, fail-to-deliver close-outs, and the penalty box
• Market-Wide Circuit Breakers: S&P 500 decline thresholds and individual stock Limit Up-Limit Down (LULD) bands
• Trade Shredding: Prohibited order-splitting practices
• Penny Stock Disclosures: SEC Rules 15g-3, 15g-4, and 15c2-11

Why This Matters

Every customer interaction with the market starts with an order. Understanding how orders work (from entry to execution to settlement) is essential for registered representatives. This unit covers the mechanics of trading, the regulatory framework that protects customers, and the rules that ensure fair and orderly markets. Expect multiple exam questions on order placement logic, best execution, short sale rules, and circuit breakers.

Let's start with the fundamental building blocks: market, limit, stop, and stop-limit orders.