Which type of order specifies a price at which a trade should be executed?

• A. Market order
• B. Limit order
• C. Stop-loss order
• D. Market-on-close order

Answer: (B)

A limit order is designed to execute a trade at a specific price or better. This type of order ensures that a trader does not pay more than the set limit price when buying, or sells for less than the limit price when selling. By specifying a price, limit orders provide greater control over the transaction than a market order, which simply executes at the current market price without regard for the specified price point.

In contrast, a market order is filled immediately at the current market price, without any price specification. Stop-loss orders are used to limit potential losses by selling a security when it reaches a certain price, but they do not define a specific execution price per se. Market-on-close orders are executed at the end of the trading day at the closing price, rather than at a predetermined price. Thus, limit orders uniquely encapsulate the need to define a specific price for execution.