Which of the following best describes a "limit order"?

Which of the following best describes a "limit order"?

• A. An order to buy or sell at market price
• B. An order to buy or sell at a specified price or better
• C. An order that guarantees immediate execution
• D. An order that cannot be modified once placed

Answer: (B)

A limit order is defined as an order to buy or sell a security at a specified price or better. This means that when an investor places a limit order to buy, the order will only be executed at the limit price or at a lower price, ensuring that they do not pay more than the specified amount. Conversely, if the order is a sell limit order, it will only be executed at the limit price or at a higher price. This characteristic allows traders to set their desired entry or exit points, helping them maintain control over their trades and manage their investment strategies more effectively. It contrasts with market orders, which execute immediately at the current market price, regardless of the price levels. Therefore, the correct understanding of a limit order emphasizes the focus on price control and the ability to achieve potentially better pricing compared to market orders.

A limit order is defined as an order to buy or sell a security at a specified price or better. This means that when an investor places a limit order to buy, the order will only be executed at the limit price or at a lower price, ensuring that they do not pay more than the specified amount. Conversely, if the order is a sell limit order, it will only be executed at the limit price or at a higher price.

This characteristic allows traders to set their desired entry or exit points, helping them maintain control over their trades and manage their investment strategies more effectively. It contrasts with market orders, which execute immediately at the current market price, regardless of the price levels.

Therefore, the correct understanding of a limit order emphasizes the focus on price control and the ability to achieve potentially better pricing compared to market orders.