What distinguishes a market order from a limit order?

What distinguishes a market order from a limit order?

• A. A market order executes at a specified price
• B. A limit order executes immediately
• C. A market order executes immediately at the current market price
• D. A limit order is riskier than a market order

Answer: (C)

A market order is designed to execute immediately at the current market price, regardless of what that price is at the time of the order. This type of order prioritizes speed of execution over the specific price at which the trade occurs. For instance, if an investor places a market order to buy a stock, the order will be filled at whatever the available market price is at that moment, ensuring a quick transaction. In contrast, a limit order specifies the maximum price the buyer is willing to pay (for a buy limit order) or the minimum price the seller is willing to accept (for a sell limit order). This can lead to situations where the order is not filled if the market price does not reach the specified limit, which is why limit orders do not guarantee immediate execution. The notion of risk associated with different order types may vary based on market conditions, but it does not specifically characterize the fundamental mechanics of a market order versus a limit order.

A market order is designed to execute immediately at the current market price, regardless of what that price is at the time of the order. This type of order prioritizes speed of execution over the specific price at which the trade occurs. For instance, if an investor places a market order to buy a stock, the order will be filled at whatever the available market price is at that moment, ensuring a quick transaction.

In contrast, a limit order specifies the maximum price the buyer is willing to pay (for a buy limit order) or the minimum price the seller is willing to accept (for a sell limit order). This can lead to situations where the order is not filled if the market price does not reach the specified limit, which is why limit orders do not guarantee immediate execution.

The notion of risk associated with different order types may vary based on market conditions, but it does not specifically characterize the fundamental mechanics of a market order versus a limit order.