Operations and Trading Procedures
Orders and Handling
A market order seeks immediate execution at the best available price. A limit order sets a maximum buy price or minimum sell price and may not fill. A stop order becomes a market order when a specified trigger is reached. A stop-limit order becomes a limit order at the trigger and may fail to fill in a fast market. Other orders include market-if-touched, OCO, fill-or-kill, day, and GTC.
Order tickets must be time-stamped and records retained. Firms must maintain audit trails, handle error trades, and follow exchange rules on position limits, price limits, and settlement. A give-up transfers a trade to another clearing firm; a transfer trade moves a position between accounts or firms.
Traps
A buy stop is placed above the market; a sell stop is placed below the market. A stop becomes a market order, so slippage is possible. A limit order may never execute. Do not confuse a stop-limit with a stop; the limit cap can leave the order unfilled. Price-limit locked markets can prevent liquidation.
Worked Example
With the market at 100, a sell stop at 90 is elected when trades occur at 90 or lower; it then becomes a market order and may fill below 90. A sell limit at 90 would execute only at 90 or better, so it might not fill at all if the market gaps lower.