The Role of Pending Orders in Forex Trading
In our last lesson, we explored the two main types of orders available in forex trading: market
orders and pending orders. In this lesson, we will look at the different types of pending
orders.
Types of pending orders to enter the market
Pending orders to enter the market are executed once certain conditions are met. There are
four types of pending orders to enter the market.
1. Buy stop
A buy stop is a pending order to buy at a price higher than the current market price. If
EUR/USD is currently trading at 1.1110, a buy stop would be set to start buying EUR/USD once
it reaches 1.1120.
2. Sell stop
A sell stop is a pending order to sell at a price lower than the current market price. If EUR/USD
is currently trading at 1.1110, a sell stop would be set to start selling once the price of
EUR/USD falls to 1.1100.
3. Buy limit
A buy limit is a pending order to buy at a price lower than the current market price. If EUR/USD
is currently trading at 1.1110, a buy limit would be set to start buying EUR/USD once it falls
to 1.1100.
4. Sell limit
A sell limit is a pending order to sell at a price higher than the current market price. If EUR/USD
is currently trading at 1.1110, a sell limit would be set to start selling EUR/USD once it rises to
1.1120.
Types of pending orders to exit the market
There are also pending orders to exit the market or close a position.
1. Stop-loss order
A stop-loss is a pending order to exit a position if the market moves in the opposite direction
of your trade. It is set at a specific price level, a certain number of pips in the opposite
direction of the trade. If the market turns against the open position, the stop-loss will be
triggered to protect the trader’s capital. Basically, a stop-loss is designed to limit the amount
a trader is willing to lose on a specific trade.
2. Take-profit order
A take-profit order is an order that specifies the exact price to close an open position for a
profit. Traders set this order at a specific level and commonly use take-profit orders
alongside stop-loss orders to manage their open positions.
3. Trailing stop
A trailing stop is a modified stop loss order that moves with the market price. When the price
moves in the desired direction, the trailing stop follows the market by a specific distance. For
example, if you set a trailing stop 20 pips below the current price in a long position, and the
price moves up by 10 pips, the trailing stop will also move up by 10 pips.
Understanding these various types of orders can help traders better manage their
positions. In the next lesson, we will discuss the concepts of bid price, ask price, spread and
swap.