Securities Trader Representative (Series 57) Practice Exam

Which of the following options correctly describes a held limit order?

1. It must be executed immediately

2. Only market makers can hold it

3. It can be traded ahead of under specific conditions

4. It cannot be canceled

The correct answer is: It can be traded ahead of under specific conditions

A held limit order is a type of order where a trader sets a specific price limit at which they are willing to buy or sell a security, and the order can remain active for a certain period of time until it is executed or canceled. The characteristic that makes a held limit order distinct is that it allows trading ahead of the order under specific conditions. This means that if the market price reaches the limit set by the order, it can help facilitate a trade instead of being executed immediately, which is typically what happens with market orders. Understanding the dynamics of held limit orders is important; they offer flexibility by allowing traders to remain in the market, waiting for the conditions that meet their order terms while also being aware that other market participants might interact with that order under specific market conditions. This ability to trade ahead creates opportunities for liquidity but comes with the risk that the order may not be filled if the price fluctuates away from the limit during the trading period. The other options address aspects of order types that do not pertain to held limit orders. For example, a held limit order does not necessitate immediate execution, nor is it exclusive to market makers—any trader can place this type of order. Additionally, held limit orders can generally be canceled,