SIE File

‭Summary‬‭of‬‭the‬‭order‬‭types‬
‭In‬‭conclusion,‬‭it’s‬‭important‬‭to‬‭remember‬‭where‬‭the‬‭market‬‭needs‬‭to‬‭go‬‭for‬‭an‬‭order‬‭to‬‭trigger‬‭or‬
‭execute.‬‭Many use‬‭“‬‭SLOBS‬‭”‬‭and‬‭“‬‭BLISS‬‭”‬‭to‬‭help‬‭them‬‭recall‬‭how‬‭order‬‭types‬‭work.‬‭The‬
‭following‬‭visual‬‭is‬‭great‬‭to‬‭memorize‬‭and‬‭re-write‬‭on‬‭your‬‭scratch‬‭paper‬‭while‬‭taking‬‭the‬‭SIE‬
‭exam:‬
‭As‬‭you‬‭can‬‭see,‬‭using‬‭this‬‭visual‬‭can‬‭help‬‭you‬‭remember‬‭how‬‭these‬‭orders‬‭work.‬‭With‬‭sell‬
‭limits‬‭above‬‭the‬‭line,‬‭this‬‭tells‬‭you‬‭they‬‭execute‬‭when‬‭the‬‭market‬‭price‬‭is‬‭at‬‭or‬‭above‬‭the‬‭limit‬
‭price.‬‭With‬‭buy‬‭limits‬‭below‬‭the‬‭line,‬‭they‬‭execute‬‭when‬‭the‬‭market‬‭price is‬‭at‬‭or‬‭below‬‭the‬‭limit‬
‭price.‬
‭Stop‬‭orders‬‭don’t‬‭execute‬‭immediately,‬‭but‬‭they‬‭trigger‬‭at‬‭specific‬‭market‬‭prices.‬‭Utilizing‬‭the‬
‭SLOBS/BLISS‬‭visual,‬‭sell‬‭stops‬‭trigger‬‭when‬‭the‬‭market‬‭price‬‭is‬‭at‬‭or‬‭below‬‭the‬‭stop‬‭price.‬‭Buy‬
‭stops‬‭trigger‬‭when‬‭the‬‭market‬‭price‬‭is‬‭at‬‭or‬‭above‬‭the stop‬‭price.‬
‭In‬‭case‬‭you‬‭were‬‭wondering,‬‭the‬‭‘O’‬‭in‬‭“SLOBS”‬‭and‬‭the‬‭‘I’‬‭in‬‭“BLISS”‬‭are‬‭only there‬‭to‬‭make‬‭an‬
‭acronym.‬
‭Another item‬‭worth‬‭noting‬‭is‬‭when‬‭certain‬‭orders‬‭are‬‭adjusted‬‭for‬‭cash‬‭dividends‬‭.‬
‭When a‬‭company‬‭pays‬‭a‬‭cash‬‭dividend‬‭to‬‭its‬‭shareholders,‬‭its‬‭stock‬‭price‬‭drops‬‭by‬‭the‬‭amount‬
‭of‬‭the‬‭cash‬‭dividend‬‭on‬‭the‬‭ex-dividend‬‭date‬‭(the‬‭day‬‭the‬‭stock‬‭begins‬‭trading‬‭without‬‭the‬
‭dividend).‬‭The‬‭company‬‭loses‬‭an‬‭asset‬‭(cash),‬‭therefore‬‭the‬‭company‬‭is‬‭worth‬‭less‬‭than‬‭they‬
‭were‬‭before‬‭the‬‭dividend‬‭payment.‬
‭Assume‬‭you place‬‭the‬‭following‬‭order:‬
‭Buy‬‭100‬‭shares‬‭of‬‭GE‬‭stock‬‭@‬‭15 limit‬
‭GE‬‭stock‬‭is trading‬‭at‬‭$15.50.‬
‭You‬‭want‬‭to‬‭purchase‬‭100‬‭shares‬‭of‬‭GE‬‭stock,‬‭but‬‭not‬‭unless‬‭they’re‬‭trading‬‭for‬‭$15‬‭or‬‭less.‬
‭With‬‭the‬‭stock‬‭trading‬‭at‬‭$0.50 above,‬‭the‬‭order‬‭remains‬‭open‬‭(unexecuted).‬
‭If‬‭GE‬‭pays‬‭a‬‭dividend‬‭of‬‭$1‬‭per‬‭share,‬‭its‬‭stock‬‭price‬‭will‬‭fall‬‭to‬‭$14.50‬‭(from‬‭$15.50).‬‭Your‬‭order‬
‭would‬‭go‬‭through due‬‭to‬‭the‬‭dividend‬‭payment,‬‭not‬‭because‬‭of‬‭market‬‭forces.‬
‭By‬‭default,‬‭broker-dealers‬‭adjust‬‭orders‬‭placed‬‭below‬‭the‬‭market‬‭(buy‬‭limits‬‭and‬‭sell stops‬‭-‬‭see‬
‭SLOBS/BLISS‬‭above)‬‭to‬‭avoid‬‭this‬‭circumstance.‬‭Most‬‭investors‬‭that‬‭place‬‭orders‬‭“away”‬‭from‬
‭the‬‭current‬‭market‬‭want‬‭their‬‭order‬‭to‬‭fill‬‭due‬‭to‬‭market‬‭forces,‬‭not‬‭just‬‭a‬‭dividend.‬
‭Placing‬‭an‬‭order‬‭“away”‬‭from‬‭the‬‭market‬‭means‬‭placing‬‭an‬‭order‬‭that‬‭cannot‬‭currently‬‭be‬‭filled.‬
‭For‬‭example,‬‭placing‬‭a‬‭sell 100‬‭shares‬‭@‬‭$30‬‭stop‬‭when‬‭the‬‭market‬‭is‬‭at‬‭$31.‬‭The‬‭order‬‭cannot‬
‭execute‬‭until‬‭the‬‭market‬‭price‬‭is‬‭$30‬‭or‬‭below,‬‭therefore‬‭the‬‭order‬‭is‬‭“away”‬‭from‬‭the‬‭market‬
‭Occurring‬‭on‬‭the‬‭ex-dividend‬‭date‬‭,‬‭buy‬‭limits and‬‭sell‬‭stops‬‭(orders‬‭below‬‭the‬‭market)‬‭are‬
‭adjusted‬‭downward‬‭by‬‭the‬‭amount‬‭of‬‭the‬‭dividend.‬‭For‬‭example:‬
‭Buy‬‭100 shares‬‭of‬‭GE‬‭stock‬‭@‬‭$15‬‭limit‬
‭becomes‬
‭Buy‬‭100‬‭shares of‬‭GE‬‭stock‬‭@‬‭$14‬‭limit‬
‭If‬‭GE‬‭stock‬‭fell‬‭to‬‭$14.50‬‭after‬‭a‬‭$1‬‭dividend,‬‭your‬‭order‬‭would‬‭not‬‭go‬‭through‬‭due‬‭to‬‭the‬
‭adjustment.‬‭The‬‭market‬‭price‬‭must‬‭now‬‭fall‬‭to‬‭$14‬‭or‬‭below‬‭for your‬‭order‬‭to‬‭execute.‬
‭This‬‭adjustment‬‭occurs‬‭for‬‭all‬‭buy‬‭limits‬‭and‬‭sell‬‭stops‬‭unless‬‭the‬‭acronym‬‭“DNR”‬‭(Do‬‭Not‬
‭Reduce)‬‭is‬‭a‬‭part‬‭of‬‭the order.‬‭For‬‭example:‬
‭Buy‬‭100‬‭shares‬‭of GE‬‭stock‬‭@‬‭$15‬‭limit‬‭DNR‬
‭Even‬‭if‬‭GE‬‭stock‬‭pays‬‭a‬‭$1‬‭dividend,‬‭this‬‭order‬‭would‬‭not‬‭be‬‭reduced.‬‭Assuming‬‭a‬‭market‬
‭price of‬‭$15.50,‬‭a‬‭$1‬‭per‬‭share‬‭dividend‬‭would‬‭force‬‭this‬‭order‬‭to‬‭be‬‭filled‬‭immediately‬‭on‬‭the‬
‭ex-dividend‬‭date.‬
‭Key‬‭points‬
‭Orders‬‭placed‬‭above current‬‭market‬
‭‬ S
● ‭ ell limits‬
‭●‬ ‭Buy stops‬
‭●‬ ‭Not‬‭adjusted for‬‭cash‬‭dividends‬
‭Orders‬‭placed‬‭below‬‭current market‬
‭‬ B
● ‭ uy limits‬
‭●‬ ‭Sell stops‬
‭●‬ ‭Adjusted‬‭for cash‬‭dividends‬
‭Cash dividend‬‭adjustments‬
‭●‬ ‭Orders‬‭below‬‭the‬‭market‬‭adjusted‬‭downward‬‭by‬‭the‬‭amount‬‭of‬‭the dividend‬
‭DNR‬‭(do not‬‭reduce)‬‭orders‬
‭●‬ ‭Never‬‭adjusted‬‭for‬‭cash dividends‬

SIE File

Uploaded by

Copyright:

Available Formats

SIE File

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SIE File

Uploaded by

Copyright:

Available Formats

‭Summary‬‭of‬‭the‬‭order‬‭types‬

‭●‬ ‭Orders‬‭below‬‭the‬‭market‬‭adjusted‬‭downward‬‭by‬‭the‬‭amount‬‭of‬‭the dividend‬

‭●‬ ‭Never‬‭adjusted‬‭for‬‭cash dividends‬

You might also like