Which of the following best describes a limit order?

A limit order is an order to buy or sell a security at a specified price or better. This means that if you are placing a limit order to buy, the order will only be executed at your specified price or at a lower price, ensuring that you do not pay more than you intended. Conversely, if you place a limit order to sell, the order will be executed at your specified price or at a higher price, which allows you to sell for a value you find acceptable.

This type of order provides investors with a level of control over their transaction prices, as it prevents them from entering the market at potentially unfavorable prices. It contrasts with a market order, where an investor is willing to buy or sell immediately at the current market price, which can lead to situations where the execution price is significantly different from the expected price due to market fluctuations.

Understanding limit orders is crucial for effective investment strategies, as they help manage risk and influence trading outcomes based on price preferences.