Securities Trader Representative (Series 57) Practice Exam

A limit order is defined as an order to buy or sell a security at a specified price or better. This means that if an investor places a limit order to buy, the order will only be executed at the specified price or lower, ensuring that the investor does not pay more than they are willing to for the security. Conversely, if a limit order is placed to sell, it will be executed at the specified price or higher, which allows the seller to secure a price that meets their expectations.

This feature of limit orders provides a degree of control and protection in trading, allowing traders to set their desired entry or exit points rather than risking execution at market prices, which can fluctuate rapidly due to market volatility. Limit orders are especially useful in illiquid markets where the execution price could differ significantly from the market price.

The other options refer to different types of orders or trading concepts. For example, an order to buy or sell at a market price involves immediate execution at the best available price, which is not the same as controlling the execution price. An order effective only at the end of the trading day relates to good-till-canceled (GTC) or day orders, which is distinct from the limit order. Instructions that execute trades only under certain conditions