What is a market order vs a limit order?

• A. A market order limits the price to a maximum; a limit order executes at any price.
• B. A market order buys or sells immediately at the current price; a limit order sets a maximum (buy) or minimum (sell) price and executes only if reached.
• C. A market order is canceled after a day; a limit order is executed immediately.
• D. A market order only applies to bonds; a limit order only applies to stocks.

Answer: (B)

Market orders prioritize speed over exact price. When you place a market order to buy, you purchase immediately at whatever the current best price is. If you’re selling, you’re matched with the highest available bid right away. In practice, if a stock is trading around $50, a market buy will fill near that price, though it can move a bit as the trade executes.

Limit orders, on the other hand, set a price you’re willing to accept. A buy limit order means you’ll only buy if the price drops to your specified limit or lower. A sell limit order means you’ll only sell if the price rises to your specified limit or higher. There’s a real advantage here: you control the price you pays or receives, but there’s a risk the order doesn’t fill at all if the market doesn’t reach your limit.

So, market orders are about getting the trade done immediately at the current price; limit orders are about controlling the price and are conditional on the market reaching your specified level. The other statements misstate how these orders work: market orders do not cap price, and limit orders do not execute at any price—each has a distinct behavior focused on speed versus price certainty.