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CFA Level 2
Equity Investments

Impact of Market Orders on Price Discovery

Hard Equity Market Structure Market Microstructure

In an increasingly complex equity market, understanding the nuances of market microstructure can have significant implications for trading strategies and market efficiency. Consider a scenario involving two types of orders: limit orders and market orders.

A limit order specifies the maximum price that the trader is willing to pay or the minimum price that they are willing to accept for a security. In contrast, a market order is executed immediately at the current market price. Given this context, which statement best reflects the impact of market orders on price discovery compared to limit orders?

Hint

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