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 such as sell stop, buy stop, sell limit, and buy limit forex orders you can automate your trades to trigger only when the market reaches your desired levels.
These orders bring flexibility more than anything else, allowing you to continue living like a normal human being rather than sit in front of your computer and monitor the charts like a hawk 24/7. They help you take the necessary measures to protect your capital and even increase your gains. However, fully understanding them can be a bit challenging. At least until this guide makes its grand entrance. So, if you want to learn the different types of pending orders and when you can use them once and for all, stick to reading this blog.
What Is a Pending Order in Forex?
In addition to market orders, which allow you to instantly execute your trade 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 which 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 forex orders and sell limit forex orders.
Buy Limit Forex Order
A buy limit forex 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 buy limit forex orders, let’s take a look at below example:
Imagine that the current exchange rate of EUR/USD is 1.2000, but you expect that the price will drop to 1.1995 before bouncing back. Therefore, you can place a buy-limit order to buy it at a limit price of 1.1995 EUR/USD. If the market price reaches 1.1995, your buy limit order will be executed, and you will buy EUR/USD at your predetermined lower price.
Sell Limit Forex Order
Sell limit forex 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.
Let’s take a look at an example to make this easier for you. Say you’re interested in trading USD/JPY. The current rate of the pair is 150.00, but you think that it will go even higher, reaching 150.98. So you set your sell limit at that level, meaning that when the price hits 150.98, you’ll automatically start to sell USD/JPY as your sell limit order is activated.
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 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.
Time for another example. You want to trade EUR/GBP, and its current quote is 0.8295. There’s been a persistent resistance level at 0.8315, and you think that the price will manage to break out of it this time, soaring to the stars. So, you set your forex buy stop order at that level, and as soon as the price hits it, you’re gonna automatically go long.
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 (typically at a pre-established support level), 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 BTC/USD at $66,900 only if it first reaches $67,000 (while the current price is $66,500). You would set the stop price at $67,000 and the limit price at $66,900. If the pair’s price hits $67,000, the stop order is triggered, and your broker will place a limit order at $66,900. If the stock price drops to $66,900, the limit order will be executed.
However, if the stock price rose above $67,000, the order will not be executed, and you will 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, let’s say you’re trying to sell USD/CAD, currently trading at $1.3905. You’re willing to sell at $1.3900 only if the pair first drops to $1.3895. So, you set a sell stop limit order with a stop price of $1.3895 and a limit price of $1.3900. Once the stock price drops to $1.3895, the stop order becomes a limit order, and if the price rises from $1.3895 to $1.3900, 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.
Stop Loss Orders: Limit or Stop?
A standard risk management practice in the world of financial markets is setting stop-loss orders. These orders are designed to close your positions on your behalf in case the price starts to seriously move against you. So, no matter the type of position you have (long or short), you set stop loss orders to literally cut your losses.
Say you’ve gone long on EUR/USD, which trades at 1.0850 currently. At this point, you decide that if the price started to decline considerably, 1.0830 would be a good point for you to accept your defeat and close the deal. So, you set a stop loss order, which, in this case, is a sell stop order. The same thing is true for times you’re going short. You open a buy stop order to cut your losses if things don’t go in your favor.
Sell Stop vs. Sell Limit in Forex Trading
Sell stop forex orders will automatically get you into a short position as soon as the price hits a predetermined level, which is lower than the current price. You are the one to specify this price level for your broker. Sell stop orders are mostly used to help traders benefit from the potential significant price decline that may take place after the price breaks out of a well-established support level. However, things might not go according to plans, and the market might enter a consolidation period right after the breakout or go according to the many more adverse scenarios out there.
On the other hand, there are sell limit orders, which you set when you believe the price is going to hit a high before reversing and starting to decline. Your sell limit level would be above the current price levels in the market, and the order would execute at that level or lower only.
Buy Limit vs. Buy Stop in Forex Trading
Pending orders in Forex are powerful tools that allow you to optimize your trading strategy by automating trade executions at predefined price levels. Using different types of pending orders, such as buy limit, sell limit, buy stop, sell stop, buy stop limit, and sell stop limit in forex, you can manage your risk more effectively 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.
In this guide, we took a more in-depth look into different types of forex pending orders and gave detailed examples of what each pending order does. In total, we overviewed 6 of the most well-known pending orders in forex: buy stop limit, sell stop limit, sell stop, buy stop, sell limit, and buy limit forex orders. No matter how well you learn them theoretically, you only become efficient in them with practice. So, we recommend you head over to our blog and open a demo account to start practicing today!
The main types of pending orders in Forex include buy stop, sell stop, buy limit, sell limit, buy stop limit, and sell stop limit orders. Each type is designed to execute trades under specific market conditions.
A buy limit forex order allows you to place an order to buy a currency pair at or above 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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