Which allows an investor to practice the theory of a security limit or

QUESTION

Which allows an investor to practice the theory of a security limit order: a mutual fund or an exchange-traded fund? Explain why.

What will be an ideal response?

ANSWER

Answer: Exchange-traded funds can be sold throughout the day, so they allow investors to buy or sell ETF shares when they reach a specified price—which is the theory behind a limit order. Mutual fund shares can only be bought or sold at the end of the trading day.
Explanation: In a limit order, a security is bought or sold only when it reaches a specified price threshold. Because exchange-traded funds can be sold at any time when markets are open, they allow investors to trade ETF shares when the threshold is reached. Mutual funds can only be traded at the end of the trading day, so investors buy or sell at the closing price.