Market Order

B is correct. When a client prioritizes immediate execution over price certainty (especially during breaking news), a market order is most appropriate. Market orders execute at the best available current price, virtually guaranteeing the trade will complete. Since the stock is highly liquid, the bid-ask spread should be tight, minimizing price slippage.

A is incorrect because a limit order does NOT guarantee execution - if the market price moves away from the limit price, the order may not fill, leaving David still holding the position during declining news. C is incorrect because a stop order only becomes active once a trigger price is reached, which could delay execution or result in worse prices if the stock is already falling. D is incorrect because stop-limit orders combine the risks of both stop orders (delay) and limit orders (no execution guarantee), making them unsuitable when immediate exit is the priority.

B is correct. The defining characteristic of a market order is that it executes immediately (or as soon as possible) at the best available current market price. Market orders prioritize speed of execution over price control, making them ideal when the investor values certainty of execution more than certainty of price.

A is incorrect because market orders do NOT guarantee a specific price - that describes limit orders. The execution price of a market order is unknown until the trade fills. C is incorrect because this describes stop orders (or stop-loss orders), which only become active market or limit orders once a trigger price is reached. D is incorrect because while many orders can be day orders or good-til-canceled (GTC), this time duration characteristic is not what distinguishes market orders from other types.

B is correct. For thinly traded (illiquid) securities with wide bid-ask spreads ($0.75 spread = 4% of the midpoint price), limit orders are more appropriate than market orders. The limit order allows the client to set a maximum acceptable purchase price, protecting against paying significantly more than the current ask due to low liquidity. Without a limit, a market order in an illiquid stock could execute at a much worse price than expected.

A is incorrect because while market orders guarantee execution, they do NOT protect against poor pricing in illiquid securities. The wide spread indicates low liquidity, making price slippage a significant risk. D makes the same error as A and incorrectly suggests that illiquidity requires immediate execution - in fact, illiquidity argues AGAINST market orders due to price risk. C is incorrect because stop orders are used to trigger trades when prices move to specific levels, not to initiate purchases at current market prices.

C is correct (the EXCEPT answer). Market orders do NOT guarantee execution at the quoted price visible when the order is placed. Prices can change rapidly between order placement and execution, especially in volatile markets. The order fills at whatever the best available price is when it reaches the trading venue, which may differ from the quote displayed moments earlier.

A is accurate: market orders are designed for investors who value execution certainty over price certainty, making them ideal when speed matters more than controlling the exact price. B is accurate: market orders have near-certain execution during market hours (assuming the security is trading), though the price is variable. D is accurate: market orders execute at the best available bid (for sell orders) or ask (for buy orders) price at the moment the order reaches the market maker or exchange, which reflects current supply and demand.

A is correct. Only statements 1 and 2 describe situations where market orders are most appropriate.

Statement 1 is TRUE: High liquidity with tight bid-ask spreads minimizes the price risk of market orders. When the spread between bid and ask is narrow (e.g., $0.01-$0.05), the execution price uncertainty is minimal, making market orders safe and efficient.

Statement 2 is TRUE: Market orders are specifically designed for situations where execution certainty is more important than price certainty. If the client needs to exit or enter a position immediately, market orders are the appropriate tool.

Statement 3 is FALSE: High volatility creates significant price risk for market orders because prices can move substantially between order placement and execution. During volatile periods, limit orders provide better price protection, even though they sacrifice execution certainty.

Statement 4 is FALSE: Thinly traded securities have wide bid-ask spreads and low market depth, creating substantial price slippage risk for market orders. Large positions in illiquid securities should use limit orders to control execution price, or the trader should work the order over time to minimize market impact.