Securities Trader Representative (Series 57) Practice Exam

When referring to the term 'limit order', what does this indicate?

1. A request to buy or sell a security at a specific price

2. A request to buy or sell a security at the market price

3. A request to cancel any existing orders

4. A request to buy or sell regardless of price

The correct answer is: A request to buy or sell a security at a specific price

The term 'limit order' specifically indicates a request to buy or sell a security at a predetermined price or better. This means that for a buy limit order, the order will only be executed at the specified limit price or lower, ensuring that the purchaser does not pay more than that set price. Conversely, for a sell limit order, it will be executed at the specified limit price or higher, ensuring that the seller does not sell for less than the set price. In contrast, the other choices describe different types of orders. A request to buy or sell at the market price refers to a market order, which is designed for immediate execution regardless of the price. A request to cancel existing orders is not directly related to limit orders at all, and a request to buy or sell regardless of price describes a market order as well, which does not have a price limitation like a limit order does. Thus, the specificity and intent of a limit order make choice A the correct understanding of the term.