Series 57 Exam Questions with
Complete Solutions23
What happens to a stop-limit order when the stop price is hit? - ANSWERS-It turns into a priced
order. A stop-limit order converts into a limit order when the stop price is hit. It may or may not
be filled, depending on whether the limit price is available.
Market maker - ANSWERS-A market maker must be willing to hold itself out to buy and sell
securities on a continuous basis. Candidates should memorize the market maker definition
Trading as Principal - ANSWERS-When a market maker trades out of its own inventory, it is said
to be acting in a principal or dealer capacity. In this scenario, the market maker is one of the
counterparties to the transaction.
Firm trading as a dealer - ANSWERS-When a firm trades as a dealer, the fee paid by a client is
called a mark-up (when the firm is selling to the client) or a mark-down (when the firm is buying
from the client)
Trading as Agent - ANSWERS-Although market makers are required to provide liquidity from
their own accounts, to the extent that they have customer interest on the other side of the
market, they can execute a trade in an agent (or a broker) capacity. When trading as agent, the
broker-dealer is facilitating a trade between two counterparties rather than participating as one.
When acting as an agent, the broker-dealer will receive a commission from each client. 1
riskless principal trade - ANSWERS-is one where a member, having received an order to buy,
purchases the security as principal and then fills the existing customer order at the same price.
It would also be a riskless principal trade in the opposite scenario, where the member sells in
the market having already received a sell order from a customer
,Collared Orders - ANSWERS-. A collared order refers to any unpriced order entered into the
system. To protect customers from extreme price volatility, the order (or any portion thereof) is
cancelled if it would be executed more than $0.25 or 5% away from the inside market at the
time the order reaches the system, whichever is greater.
Limit Orders - ANSWERS-A buy limit order specifies the maximum price at which an order can be
filled, while a sell limit order specifies a minimum price that will be accepted.
Marketable limit order - ANSWERS-is one that can be filled immediately upon order entry given
the current market price.
stop order - ANSWERS-◆ Step 1: The stock trades at or through a designated stop price. ◆
Step 2: The order is activated, elected, or triggered and becomes a market order. As a market
order, it will immediately execute at the best available price (the best bid for sell stop orders;
the best offer for buy stop orders).
Buy Stop Orders - ANSWERS-A buy stop order is entered at a stop price above the market price.
It can be used to protect a profit or limit a loss on a short stock position
*Order Size - ANSWERS-Normal Unit of Trading = round lot
Mixed lot = more than Normal unit requirement but not in round lot ex) 286 shares
Odd lot = less than a Normal unit ex) 12 shares
Allowable order size = 1 ~ 999,999 shares, odd-lot is allowed but not fractional
Time in Force - ANSWERS-Time in force describes when the system will make an order available
for execution. If a customer does not specify a specific time in force, the order will be treated as
a day order. Orders can be defined as market hours day orders or system hours day orders.
Market hours are 9:30 am-4:00 pm. System hours are 4:00 am-8:00 pm.
, Market Hours Day (MDAY) - ANSWERS-A market hours day (MDAY) order is the default order
type. An MDAY order is executable between 9:30 am and 4:00 pm on the day the order is
entered. Any portion not executed by 4:00 pm is cancelled.
Market Hours Good 'Til Cancelled (GTC) - ANSWERS-A good 'til cancelled (GTC) order is available
for execution during market hours for one full year from the date of order entry, unless it is
executed or cancelled by the customer.
Payment for Order Flow - ANSWERS-Payment for order flow (PFOF) is the compensation a
broker receives for routing trades for trade execution to a particular market maker. According to
the SEC, payment for order flow is a method of transferring some of the trading profits from
market making to the brokers routing the orders.
AON - ANSWERS-an order to buy or sell a stock that must be executed in its entirety, or not
executed at all. AON orders that cannot be executed immediately remain active until they are
executed or cancelled. Learn More.
FOK - ANSWERS-an order to buy or sell a stock that must be executed immediately in its
entirety; otherwise, the entire order will be cancelled
IOC - ANSWERS-An Immediate-Or-Cancel (IOC) order is an order to buy or sell a stock that must
be executed immediately. Any portion of an IOC order that cannot be filled immediately will be
cancelled.
OCO - ANSWERS-A one-cancels-the-other (OCO) order is a pair of conditional orders stipulating
that if one order executes, then the other order is automatically canceled. An OCO order often
combines a stop order with a limit order on an automated trading platform.
Spread order - ANSWERS-A spread order is a combination of individual orders (legs) that work
together to create a single trading strategy. Spread types include futures spreads, and
combinations of option/option, option/stock and stock/stock on the same or multiple
underlyings.
Complete Solutions23
What happens to a stop-limit order when the stop price is hit? - ANSWERS-It turns into a priced
order. A stop-limit order converts into a limit order when the stop price is hit. It may or may not
be filled, depending on whether the limit price is available.
Market maker - ANSWERS-A market maker must be willing to hold itself out to buy and sell
securities on a continuous basis. Candidates should memorize the market maker definition
Trading as Principal - ANSWERS-When a market maker trades out of its own inventory, it is said
to be acting in a principal or dealer capacity. In this scenario, the market maker is one of the
counterparties to the transaction.
Firm trading as a dealer - ANSWERS-When a firm trades as a dealer, the fee paid by a client is
called a mark-up (when the firm is selling to the client) or a mark-down (when the firm is buying
from the client)
Trading as Agent - ANSWERS-Although market makers are required to provide liquidity from
their own accounts, to the extent that they have customer interest on the other side of the
market, they can execute a trade in an agent (or a broker) capacity. When trading as agent, the
broker-dealer is facilitating a trade between two counterparties rather than participating as one.
When acting as an agent, the broker-dealer will receive a commission from each client. 1
riskless principal trade - ANSWERS-is one where a member, having received an order to buy,
purchases the security as principal and then fills the existing customer order at the same price.
It would also be a riskless principal trade in the opposite scenario, where the member sells in
the market having already received a sell order from a customer
,Collared Orders - ANSWERS-. A collared order refers to any unpriced order entered into the
system. To protect customers from extreme price volatility, the order (or any portion thereof) is
cancelled if it would be executed more than $0.25 or 5% away from the inside market at the
time the order reaches the system, whichever is greater.
Limit Orders - ANSWERS-A buy limit order specifies the maximum price at which an order can be
filled, while a sell limit order specifies a minimum price that will be accepted.
Marketable limit order - ANSWERS-is one that can be filled immediately upon order entry given
the current market price.
stop order - ANSWERS-◆ Step 1: The stock trades at or through a designated stop price. ◆
Step 2: The order is activated, elected, or triggered and becomes a market order. As a market
order, it will immediately execute at the best available price (the best bid for sell stop orders;
the best offer for buy stop orders).
Buy Stop Orders - ANSWERS-A buy stop order is entered at a stop price above the market price.
It can be used to protect a profit or limit a loss on a short stock position
*Order Size - ANSWERS-Normal Unit of Trading = round lot
Mixed lot = more than Normal unit requirement but not in round lot ex) 286 shares
Odd lot = less than a Normal unit ex) 12 shares
Allowable order size = 1 ~ 999,999 shares, odd-lot is allowed but not fractional
Time in Force - ANSWERS-Time in force describes when the system will make an order available
for execution. If a customer does not specify a specific time in force, the order will be treated as
a day order. Orders can be defined as market hours day orders or system hours day orders.
Market hours are 9:30 am-4:00 pm. System hours are 4:00 am-8:00 pm.
, Market Hours Day (MDAY) - ANSWERS-A market hours day (MDAY) order is the default order
type. An MDAY order is executable between 9:30 am and 4:00 pm on the day the order is
entered. Any portion not executed by 4:00 pm is cancelled.
Market Hours Good 'Til Cancelled (GTC) - ANSWERS-A good 'til cancelled (GTC) order is available
for execution during market hours for one full year from the date of order entry, unless it is
executed or cancelled by the customer.
Payment for Order Flow - ANSWERS-Payment for order flow (PFOF) is the compensation a
broker receives for routing trades for trade execution to a particular market maker. According to
the SEC, payment for order flow is a method of transferring some of the trading profits from
market making to the brokers routing the orders.
AON - ANSWERS-an order to buy or sell a stock that must be executed in its entirety, or not
executed at all. AON orders that cannot be executed immediately remain active until they are
executed or cancelled. Learn More.
FOK - ANSWERS-an order to buy or sell a stock that must be executed immediately in its
entirety; otherwise, the entire order will be cancelled
IOC - ANSWERS-An Immediate-Or-Cancel (IOC) order is an order to buy or sell a stock that must
be executed immediately. Any portion of an IOC order that cannot be filled immediately will be
cancelled.
OCO - ANSWERS-A one-cancels-the-other (OCO) order is a pair of conditional orders stipulating
that if one order executes, then the other order is automatically canceled. An OCO order often
combines a stop order with a limit order on an automated trading platform.
Spread order - ANSWERS-A spread order is a combination of individual orders (legs) that work
together to create a single trading strategy. Spread types include futures spreads, and
combinations of option/option, option/stock and stock/stock on the same or multiple
underlyings.
