What is a limit order?

A limit order is defined as an order to buy or sell a security at a specified price or better. This means that, when placing a limit order, the trader sets the maximum price they are willing to pay for a security when buying, or the minimum price they are willing to accept when selling. The advantage of using a limit order is that it gives the trader control over the price at which the transaction is executed, allowing for the potential to enter or exit a position at a more favorable rate compared to a market order, which executes at the best available price at that moment.

For instance, if an investor wishes to purchase shares of a stock currently trading at $50, they may place a limit order to buy at $48. This order will only be executed if the stock price falls to $48 or lower, ensuring that the investor does not pay more than their specified amount. Similarly, if a trader wants to sell shares they own, they might set a limit to sell at $52, ensuring they receive at least that amount upon selling.

The other options describe characteristics or types of orders that do not align with the definition of a limit order. An order to sell at the current market price does not involve a specified price, making it a