Orders Placed Prior to Execution of Trade

A

The orders that are placed prior to the execution of trade are known as "conditional orders" or "pending orders." These orders are used by investors and traders to enter or exit the market at a specific price level or when a certain condition is met.

Out of the answer choices given, the correct answer is B. Market and limit orders. Let's examine these order types in detail:

1. Market order: A market order is an order to buy or sell a security at the prevailing market price. When a market order is placed, it is executed immediately at the best available price. The advantage of a market order is that it ensures the order will be executed, but the disadvantage is that the price may not be favorable.

2. Limit order: A limit order is an order to buy or sell a security at a specific price or better. When a limit order is placed, it will only be executed at the specified price or better. The advantage of a limit order is that the price is guaranteed, but the disadvantage is that there is no guarantee the order will be executed.

In summary, market orders are executed immediately at the prevailing market price, while limit orders are executed only at the specified price or better. Both of these orders are placed prior to the execution of trade.

Option A (Market and stop orders) is incorrect because a stop order is a conditional order that is triggered when a security reaches a specific price level, known as the stop price. Once the stop price is reached, the order becomes a market order and is executed at the best available price. Therefore, a stop order is not placed prior to the execution of trade.

Option C (Stop and limit orders) is incorrect because, as mentioned earlier, a stop order is not placed prior to the execution of trade. Additionally, stop orders are conditional orders that are triggered when the price of a security reaches a certain level.

Option D (Stop and mitigate orders) is not a valid order type, and therefore incorrect.