Overview
This lecture covered key types of stock and options orders, how to open, close, and protect positions, and the logic behind market, limit, and stop orders, with a focus on exam-relevant phrasing and testable distinctions.
Opening and Closing Positions
- Opening a long position is done with an "opening purchase" order.
- Opening a short position is done with an "opening sale" order, selling borrowed securities.
- To exit a long position, use a "closing sale."
- To exit a short position, use a "closing purchase."
- "Eliminate or reduce" signals closing transactions on exams.
Market and Limit Orders
- Market orders execute immediately at the best available price (no contingencies).
- Limit orders execute at the customer’s specified price or better; price is more important than execution.
- Buy limits go below current market price; sell limits go above market price.
- Orders may be designated as "day orders" (expire same day) or "GTC" (good till cancel).
Stop Orders and Stop-Loss Protection
- Stop orders are mainly used to stop losses ("stop-loss" orders) or to protect profits.
- A sell stop is placed below the current price to protect long positions.
- A buy stop is placed above the current price to protect short positions.
- Buying a put (for long) or buying a call (for short) also provides loss protection, acting like insurance.
- Stop orders have three main uses: stop a loss, protect a profit, or establish a position.
Technical Analysis and Order Placement
- Support line: price level where buying is strong; resistance line: price level where selling is strong.
- Buy stops placed above resistance can trigger new long positions.
- Sell stops placed below support can trigger new short positions.
- Buy stops accelerate bullish trends; sell stops accelerate bearish trends.
Stop-Limit Orders
- A stop-limit order becomes a live limit order if triggered at the stop price, but may not execute if price moves past the limit.
- The more qualifiers/contingencies on an order, the less likely it is to be executed.
Order Placement Memory Aid
- "SLOBS over BLISS": Sell Limits and Buy Stops = Above market, Buy Limits and Sell Stops = Below market.
- Only orders below market (BLISS) are adjusted for dividends, unless marked DNR (Do Not Reduce).
Discretionary Orders
- Discretionary authority is needed for brokers to decide action, asset, or amount without explicit client direction.
- Time or price instructions alone do not require discretionary authority.
- "Market not held" orders do not require discretion; the floor broker executes at their judgment.
Order Qualifiers/Contingencies
- Fill or Kill (FOK): order must be filled entirely at once or not at all.
- Immediate or Cancel (IOC): fill as much as possible immediately, cancel remainder.
- All or None (AON): fill entire order, can wait for complete fill.
Key Terms & Definitions
- Opening Purchase — Buy order to establish or add to a long position.
- Opening Sale — Sell order to establish or add to a short position.
- Closing Sale — Sell order to exit/reduce a long position.
- Closing Purchase — Buy order to exit/reduce a short position.
- Market Order — Order to buy/sell immediately at best price.
- Limit Order — Order to buy/sell at specified price or better.
- Stop Order — Triggers a market order at specified stop price.
- Stop-Limit Order — Triggers a limit order at stop price.
- Discretionary Order — Broker decides action, asset, or amount.
- SLOBS over BLISS — Mnemonic for order placement above/below market.
Action Items / Next Steps
- Review "SLOBS over BLISS" for order placement rules.
- Practice identifying order types and their uses in exam questions.
- Prepare for the next lecture on debt securities.