TYPES OF ORDERS ON THE SECONDARY MARKET

Many bond trades conducted on the secondary market are market orders -- instructions to buy or sell bonds at the very best price available. Yet, sometimes broker-dealers use other directives as well.

A limit order restricts the transaction to a specific price -- or better. Imagine that you want to buy a particular bond and believe that the price will soon come down two points or more. You may instruct the broker-dealer to execute a limit order, buying only when the price declines by two points -- if it does.

An all-or-none (AON) order applies if you are trying to trade several bonds all at the same time. You can place the AON order, ensuring that your broker-dealer will not transact a partial order, perhaps leaving you with a very small or odd lot of remaining bonds to sell. You generally must pay higher fees to sell odd lots compared to round lots of 10 or 100 units.

A fill-or-kill (FOK) order is similar to an AON order, except that if your broker-dealer is not able to execute the FOK order immediately, it is canceled. The FOK order also comes into play more often with large round lot orders.