In a limit order, what is specified?

In a limit order, the trader specifies the maximum price they are willing to pay when buying or the minimum price they are willing to accept when selling. This allows investors to have control over the prices at which their trades are executed, ensuring that they do not pay more than they intend or sell for less than their desired price.

For example, if a trader places a limit order to buy a stock at $50, they will only purchase the stock if it is available at that price or lower. Conversely, if they place a limit order to sell a stock at $50, they will only sell if they can receive that price or higher. This mechanism differs significantly from market orders, where execution happens at the best available price without restrictions.

In contrast, specifying an exact price for execution or not requiring a price at all does not align with how limit orders function. Furthermore, calculating an average price based on past trades is not relevant to the execution of a limit order, as it focuses strictly on the trader's predetermined price thresholds.