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A stop-limit order is activated when the stop price is reached, but it executes only at the specified limit or better. A stop order (A) becomes a market order, not a limit order. Market orders (B) execute immediately, while day orders (D) simply define order duration. Knowing how order types function helps prevent trade errors and ensures compliance with client instructions.

The primary market is where new securities are issued for the first time by corporations or governments to raise capital. Investors purchase these securities directly from the issuer, often through an underwriting syndicate organized by an investment bank. This process provides much-needed funding for companies to expand operations, fund projects, or pay down debt. In contrast, the secondary market facilitates trading between investors after the initial issuance, offering liquidity but not generating capital for the issuing entity. Options A and D describe secondary market activities. Option C refers to share repurchases, which occur in the secondary market as well. Understanding this distinction is vital for FINRA candidates because representatives must explain to clients how securities markets operate, including IPOs, private placements, and subsequent trading. FINRA’s Series exam objectives stress that professionals must recognize the different functions of the primary versus secondary markets, their impact on liquidity, and regulatory oversight. Mastery of this concept ensures candidates can guide clients accurately about how and why securities are offered and traded.

Common stock carries significant market risk as its value depends on investor sentiment and company performance. Treasuries (A) and municipals (D) carry interest rate risk but less volatility than equities. CDs (C) are fixed deposits with minimal risk. FINRA tests this concept to ensure candidates can match product risks with client objectives.

A corporate account requires a charter and board resolution authorizing account activity and identifying authorized traders. Partnerships (A), trusts (B), and custodial accounts (D) have different documentation. Exams focus on this to ensure proper legal account establishment.

A sell stop order is placed below the market price to protect a long position. If the stock falls to the stop price, it becomes a market order, limiting further losses. Buy stop orders (A) protect short positions, while limit orders (C) focus on price, not loss protection. Day orders (D) define order duration. Series exams test stop orders because they are widely used in risk management strategies.