3.1 Order Types

Securities Industry Essentials SIE

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1 Introduction

About the SIE Exam How to Use This Course

2 Chapter 1: Knowledge of Capital Markets

1.1 Regulatory Bodies 1.2 State Regulation 1.3 Market Participants 1.4 Types of Markets 1.5 The Exchanges 1.6 OTC Markets 1.7 Economic Policies 1.8 Interest Rates 1.9 Business Cycles 1.10 International Economics

3 Chapter 2: Understanding Products and Their Risks

2.1 Common Stock Basics 2.2 Corporate Actions 2.3 Preferred Stock 2.4 ADRs 2.5 Bond Basics 2.6 Yields 2.7 U.S. Treasury Securities 2.8 Corporate Bonds 2.9 Municipal Bonds 2.10 Money Market Instruments 2.11 Options Basics 2.12 Hedging Strategies 2.13 Mutual Funds 101 2.14 Mutual Fund Fees 2.15 ETFs 2.16 UITs & REITs 2.17 DPPs 2.18 Systematic Risk 2.19 Non-Systematic Risk 2.20 Mitigation Strategies

4 Chapter 3: Trading, Customer Accounts and Prohibited Activities

3.1 Order Types 3.2 Trade Settlement 3.3 Quoting 3.4 Account Types 3.5 Account Registration 3.6 Retirement Plans 3.7 Education Savings 3.8 AML Rules 3.9 Market Manipulation 3.10 Insider Trading 3.11 Customer Protection

5 Chapter 4: Overview of Regulatory Framework

4.1 Registration 4.2 Continuing Education 4.3 Employee Conduct 4.4 Correspondence

3.1 Order Types

Key Takeaways Explain This Topic AI

Market orders guarantee execution but not price, while limit orders guarantee price but not execution

Sell stop orders are placed below market to protect long positions; buy stop orders are placed above market to protect short positions

SLoBS (Sell Limit or Buy Stop) orders are placed above the market, while BLiSS (Buy Limit or Sell Stop) orders are placed below the market

Stop-limit orders combine features of both stop and limit orders - when triggered, they become limit orders instead of market orders

• Discretionary orders require written authorization from the customer and supervisor approval of each trade
• Last updated: January 2026

Understanding order types is essential for the SIE exam and real-world trading. Each order type serves a specific purpose and carries different risks regarding price and execution certainty.

Market Orders

A market order instructs the broker to buy or sell a security immediately at the best available price.

Key Characteristics

• Feature Market Order
• Execution Guaranteed (during market hours)
• Price Not guaranteed - next available price
• Speed Fastest execution
• Best Use When speed matters more than price
• When to Use Market Orders
• Highly liquid securities with narrow bid-ask spreads
• When immediate execution is the priority
• During normal market conditions (not extreme volatility)

Exam Tip: Market orders guarantee execution but NOT price. In volatile markets, the execution price may differ significantly from the last quoted price.

Limit Orders

A limit order sets a maximum purchase price or minimum sale price. The order executes only at the limit price or better.

• Buy Limit Orders
• Set below the current market price
• Execute at the limit price or lower
• Used when an investor wants to buy but only at a better (lower) price
• Sell Limit Orders
• Set above the current market price
• Execute at the limit price or higher
• Used when an investor wants to sell but only at a better (higher) price

• Order Type Placed Executes At
• Buy Limit Below market Limit price or lower
• Sell Limit Above market Limit price or higher

Key Point: Limit orders guarantee price but NOT execution. If the market never reaches your limit price, the order won't execute.

Stop Orders (Stop-Loss Orders)

A stop order becomes a market order once the stock trades at or through the stop price (the "trigger").

• Sell Stop Orders
• Placed below the current market price
• Protects a long position (stock you own)
• Triggers when the price falls to the stop price
• Once triggered, becomes a market order to sell

Example: You own stock at $50. Place a sell stop at $45 to limit potential losses. If the stock drops to $45, your stop triggers and sells at the next available price.

• Buy Stop Orders
• Placed above the current market price
• Protects a short position (borrowed stock)
• Triggers when the price rises to the stop price
• Once triggered, becomes a market order to buy

Example: You're short stock at $50. Place a buy stop at $55 to limit losses. If stock rises to $55, your stop triggers and buys to cover your short.

• Order Type Placed Purpose
• Sell Stop Below market Protect long position
• Buy Stop Above market Protect short position
• Stop-Limit Orders

A stop-limit order combines features of stop and limit orders. When triggered, it becomes a limit order instead of a market order.

• How It Works
• Stop price reached → order activates
• Activated order becomes a limit order
• Executes only at limit price or better
• Advantage and Disadvantage

• Stop-Limit
• Advantage Price protection after trigger
• Disadvantage May not execute if price moves past limit

Warning: In a fast-moving market, a stop-limit order may not execute at all if the price gaps through your limit.

Memory Trick: SLoBS and BLiSS

This acronym helps remember where orders are placed relative to market price:

• SLoBS = Sell Limit or Buy Stop
• Placed ABOVE the market price
• Sell Limit: Want to sell higher than current price
• Buy Stop: Protects short position if price rises
• BLiSS = Buy Limit or Sell Stop
• Placed BELOW the market price
• Buy Limit: Want to buy lower than current price
• Sell Stop: Protects long position if price falls

• Acronym Orders Placement
• SLoBS Sell Limit, Buy Stop Above market
• BLiSS Buy Limit, Sell Stop Below market
• Order Duration

Orders can have different time limits:

• Duration Meaning
• Day Order Expires at end of trading day if not filled
• GTC (Good-Til-Canceled) Remains active until filled or canceled
• IOC (Immediate or Cancel) Fill immediately or cancel unfilled portion
• AON (All or None) Must fill entire order or none at all
• FOK (Fill or Kill) Fill entire order immediately or cancel
• Discretionary vs. Non-Discretionary Orders
• Non-Discretionary

The customer specifies all order details:

• Security
• Action (buy/sell)
• Quantity
• Price (if limit/stop)
• Discretionary

The representative has authority to decide one or more of:

• Which security
• Whether to buy or sell
• How many shares
• Price

Important: Discretionary authority requires written authorization from the customer and supervisor approval of each trade.

Summary: Order Type Comparison

• Order Type Execution Guaranteed? Price Guaranteed? Best For
• Market Yes No Speed/liquidity
• Limit No Yes Price control
• Stop No (until triggered) No Loss protection
• Stop-Limit No Yes (after trigger) Protection + price control