A customer places a market order at the open. A dividend hits the next morning. Settlement clears two days later. Each step has rules, and the SIE tests whether you know which order fills when, who owns the dividend, and when cash actually moves.
Market Order. An instruction to buy or sell immediately at the best available price. Execution is essentially certain in a liquid stock. Price is not. A market order in a thin stock can fill far from the last print.
Limit Order. A price ceiling on a buy or a price floor on a sell. A buy limit at $50 fills at $50 or lower. A sell limit at $50 fills at $50 or higher. Execution is conditional on the market reaching your price.
Stop Order. (Stop-Loss) A dormant order that activates when the stock trades at or through the stop price. Once triggered, it becomes a market order. A sell stop at $45 protects a long position from further decline.
Common mistakes
- Confusing stop orders with limit orders. A sell stop at $45 triggers when the stock hits $45 and becomes a market order, not a limit at $45.
- Forgetting that short losses are unlimited. A short at $10 has no ceiling on how high the stock can run.
- Quoting YTM on a premium callable bond. The conservative quote is the lower of YTM and YTC, which is YTC for a premium bond.
Bottom line
- Market orders guarantee execution, not price; limit orders guarantee price, not execution
- Stop orders become market orders once the stop trigger prints; stop-limit orders become limit orders
- Agency trade = commission; principal trade = markup or markdown built into the price
- Regular-way settlement is T+1 for stocks, corporate bonds, munis, and options; T+0 for Treasuries and cash trades
Exam shortcut
Order trigger cheat: market = certain fill, uncertain price; limit = certain price, uncertain fill; stop = trigger then market; stop-limit = trigger then limit. Yield ladder for premium bonds: Nominal > Current > YTM > YTC. For discount bonds, reverse the entire chain. Settlement chant: stocks, corps, munis, ETFs, options = T+1; Treasuries = T+1 (cash = T+0); mutual funds = T+1.
The full lesson (about 2,754 words, 18 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- C12
- C13
- C14
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