Products & Their RisksQuestion 72 of 398
An investor wants to place a limit order and trade intraday, and to be able to use stop orders. Compared with a traditional open-end mutual fund, which product better meets these needs?
a.A traditional open-end mutual fund, because it prices continuously
b.An ETF, because it trades on an exchange throughout the day and supports limit and stop orders
c.A unit investment trust, because units trade like stocks
d.Neither, because pooled products cannot use limit orders
Explanation
Because ETFs trade on exchanges throughout the day, investors can use limit orders, stop orders, and trade at intraday prices. Traditional open-end mutual fund shares are priced only once per day at the next calculated NAV (forward pricing), so intraday order types do not apply to them.
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