Pending orders in Forex help you stay ahead of the market curve, enabling you to execute your trades at the perfect moment without missing a beat. With different types of pending orders in forex, like Buy Stop, Sell Stop, Buy Limit, and Sell Limit, you can automate your trades to trigger only when the market reaches your desired levels.
This flexibility ensures that you can capture opportunities, whether the market is trending or reversing, all while avoiding the stress of constant monitoring. Keep reading to learn about different types of pending orders in forex and understand how they work!
What Is a Pending Order in Forex?
In addition to market orders, which allow you to execute your trade at the moment with the current market price, the forex market also offers the option of using pending orders. Pending orders in forex enable you to set specific conditions for entering or exiting a position later once certain criteria are met.
Pending orders in forex are highly useful for traders interested in automating their trading strategies, as they allow for greater precision and control over trade execution.
By setting different types of pending orders, you can specify the exact price level at which you wish to buy or sell a currency pair, ensuring that your trade is only executed when the market reaches your desired conditions.
This helps you manage your risk and profit from market opportunities without constantly monitoring the markets. Pending orders in forex come in different types; we’ll elaborate on them below.
Types of Pending Orders In Forex
There are six types of pending orders in forex, each designed to execute your trades under specific market conditions, which are explained below.
Limit Orders
Let’s start our exploration of pending orders in forex by focusing on limit orders. Limit orders in forex trading are categorized into two types: buy limit orders and sell limit orders.
Buy Limit Order
A buy limit order allows you to place an order with your broker or exchange to buy an asset at or below a specified price. This type of pending order in forex trading is typically used when you believe that the price of an asset or currency pair will decline to a certain level, hit a support point, and then reverse direction, providing an opportunity to profit from the subsequent uptrend. To grasp better, let’s take a look at below example:
Imagine that the current exchange rate of EUR/USD is 1.20, but you expect that the price will drop to 1.15 before bouncing back. Therefore, you can place a buy-limit order to buy it at a limit price of 1.15 EUR/USD. If the market price reaches 1.15, your buy limit order will be executed, and you will buy EUR/USD at your determined lower price.
Sell Limit Order
Sell-limit orders act in the opposite manner to buy-limit orders. A sell limit order allows you to place an order with a broker or exchange to sell a currency pair or other assets at or above a specified price. This type of pending order in forex is typically used when you anticipate that the price of an asset will rise to a certain level, allowing you to sell at a higher price before the market potentially reverses direction.
Imagine you own shares of stock XYZ, currently trading at $50 per share, and then you want to sell your shares if the price rises to $70. To achieve this, you place a sell limit order to sell your shares at a limit price of $70 per share. If the market price reaches or exceeds $70, the sell order will be executed. However, if the price doesn’t get to $70 or begins to fall, the order will not be executed, and you may miss the opportunity to sell at a favorable price.
Both buy limit and sell limit orders are valuable tools for traders looking to boost their potential profits while minimizing risk. These types of pending orders in forex allow you to set specific price targets for entering or exiting a position, giving you greater control over your trading activities and outcomes.
Stop Orders
Another type of pending order in forex is a stop order, which involves placing an order to buy a financial instrument at a higher price or to sell it at a lower price than the current market value. Like limit orders, stop orders are divided into two categories: buy-stop orders and sell-stop orders.
Buy Stop Orders
A buy-stop order is placed when you instruct your broker or exchange to purchase a security once its market price reaches a specified higher level, anticipating that the upward trend will continue.
For example, you might decide to buy 50 shares of Apple, but only if the price rises to $60 per share or higher. If the stock price reaches $60, your broker will execute the order at the prevailing market price, which may be above the stop price.
Sell Stop Orders
A sell-stop order is used when you expect that the price of a security will break below a certain level and continue its downward trend. You place the order at a price lower than the current market value, and if the price reaches this level, the order will be executed.
If your prediction is correct and the downward trend continues, you will benefit from the further price decline. However, you may incur a loss if the trend reverses and moves upward.
So far, we’ve discussed four types of pending orders in forex commonly used in MetaTrader 4, a popular trading platform among traders and brokers.
However, MetaTrader 5 introduces two additional types of pending orders: buy stop-limit and sell stop-limit orders, which we will elaborate on below. You can download the latest version of MetaTrader 5 from the ITB broker and place these orders accordingly.
Buy Stop-Limit Order
A buy stop limit order is a type of pending order in forex that is executed in two stages: first as a stop order and then as a limit order.
- To place a buy stop limit order, you first set a stop price, which is the price at which the order is triggered to begin.
- Once the stop price is reached, the order becomes a limit order, specifying the maximum price you are willing to pay.
For example, a buy stop-limit order would be useful if you want to buy a stock at $40 only if it first reaches $60 (while the current price is $30). You would set the stop price at $60 and the limit price at $40.
If the stock price hits $60, the stop order is triggered, and your broker will place a limit order at $40. If the stock price drops to $40, the limit order will be executed.
However, if the stock price rises above $60, the order will not be executed, and you would need to place a new order.
Sell Stop Limit Order
Similar to the buy stop-limit order, the sell stop-limit order is another form of pending order in Forex that involves two steps: a stop order followed by a limit order.
- To place a sell stop-limit order, first, you need to set a stop price to trigger the order.
- Once the stop price is reached, a limit order is placed at the stop price or higher, specifying the minimum price you are willing to accept to sell your shares.
For example, if you own 100 shares of Apple currently trading at $60 per share and want to sell them at $40 only if the stock first drops to $30, you would set a sell stop-limit order with a stop price of $30 and a limit price of $40. Once the stock price drops to $30, the stop order becomes a limit order, and if the price rises from $30 to $40, the sell stop limit order will be executed.
The Bottom Line
Pending orders in Forex are powerful tools that allow you to optimize your trading strategy by automating trade execution at predefined price levels. Using different types of pending orders, such as Buy Stop, Sell Stop, Buy Limit, and Sell Limit, you can effectively manage your risk and ensure that your trades are executed only when the market meets your specific criteria. This enables you to capitalize on market opportunities without constantly monitoring the markets, helping you maximize profits while minimizing losses.
The main types of pending orders in Forex include Buy Limit, Sell Limit, Buy Stop, Sell Stop, Buy Stop-Limit, and Sell Stop-Limit orders. Each type is designed to execute trades under specific market conditions.
A Buy Limit order allows you to place an order to buy a currency pair at or below a specified price, typically used when you expect the price to drop to a certain level before reversing and moving upward.
A Sell Stop order is used when you anticipate that the price of a currency pair will fall below a certain level and continue its downward trend. The order is executed once the price reaches your specified lower level.
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