What is a 'limit order'?

A limit order is a type of trading order that specifies the maximum price a buyer is willing to pay or the minimum price a seller is willing to accept for a security. This means that the order will only be executed at the specified price or at a price that is more favorable. For buyers, the order will execute if the market price falls to or below the specified limit price. For sellers, it executes if the market price rises to or above the limit price. This allows traders to have greater control over the prices at which they buy or sell securities, as it prevents execution at undesirable prices.

The other options describe different types of orders: one describes a market order, which does not place any conditions on price and executes at the best available price; another describes a stop order, which triggers an order to sell only when the security reaches a certain price; and the last option refers to an order duration type, rather than price specifications. Each of these alternatives lacks the key characteristic of a limit order, which is the specific price condition that guides the execution of the trade.