Understanding Order Types in Equity Trading

Very Hard Equity Market Structure Order Types And Instructions

In the context of equity trading, an institutional investment manager is looking to buy 50,000 shares of a stock currently priced at $30. The manager has two potential order types to execute this trade: a limit order and a market order.

The limit order will be set at $29.50 and specifies that only shares can be purchased at or below this price. The market order, however, will execute immediately at the best available market price.

Given this scenario, which of the following statements best describes the likely outcomes of executing these two order types?

The limit order guarantees execution but may not achieve the best price.

The market order guarantees execution at $30 or less, but may result in a higher average price.

The limit order guarantees a maximum price but may lead to a reduced fill rate if the stock price rises.

Hint

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