How is a limit order defined in trading?

How is a limit order defined in trading?

• A. An order to buy or sell at any market price
• B. An instruction to execute at a specific price
• C. An option to cancel trades before execution
• D. A request for best execution under any circumstances

Answer: (B)

A limit order is defined as an instruction to execute a trade at a specific price or better. This type of order ensures that the trader will not pay more than a designated price for a purchase or accept less than a designated price when selling. This provides traders with greater control over the entry and exit points of their trades, allowing them to manage risk and execute their strategies effectively.

The other options present different concepts in trading. For instance, an order to buy or sell at any market price refers to a market order, which does not guarantee the price and prioritizes immediate execution instead. The notion of canceling trades before execution is not applicable to limit orders, as these orders will remain open until the specified price is reached or the trader cancels them. Finally, while requesting best execution is crucial in trading, it does not specifically define a limit order and encompasses a broader range of practices.