Understanding Pending Orders in Forex

BySmart Forex Pips

Understanding the idea behind ​​pending orders in the Forex market can seem at first a rather difficult task for beginners. We will explain the way they are used and why they are more complex compared to the usual market orders. Pending orders allow traders to automate the trading process and monitor the market even when they are not near the computer. There are 4 basic types of pending orders, and 2 derived views (which are quite popular):

Buy limit is used if you want to buy a currency pair (open a long position) at a level that is below the current price. For example, now the price of the EUR / USD pair is above the level of 1.4000, you assume that when the price of this currency pair drops to the level of 1.4000, it will bounce off this price and move up. In order not to follow all the time the price until it reaches this level, you can put an automatic buy limit order from this level, which will work as soon as the price reaches it.

Sell ​​limit is used if you want to sell a currency pair (open a short position) at a level that is above the current price. For example, the price of the GBP / USD pair is now in the area of ​​1.6260, you think that if the price reaches the level of 1.6500, then it will definitely fall down. If you want your broker to open a position for SELL from this level, then you need to place a sell limit at this price.

Buy stop is a pending order to buy a currency pair (open a long position) at a level that is above the current price. Let’s take the same example with the EUR / USD currency pair. The price is now in the area 1. 4230. If you think that the price will break the level of 1.4300 and then continue the uptrend then you want to open a buy position from that level. All you need to do is place a buy stop order at 1.4300.

Sell ​​Stop is a pending order for the SELL of a currency pair (the opening of a short position) at a level that is below the current price. Our example with GBP / USD, you believe that if the price goes below the 1.6200 mark, this will trigger a strong downward movement. If you want to automatically open a trade for SELL, then you need to use the sell stop order.

Simply put, buy stop and sell stop are orders for level breakdown, and buy limit and sell limit is a rebound order. The example shows visually how this happens.

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Stop-loss is also an automatic warrant, which is used to limit losses. It works when the price reaches the specified level and then the position is automatically closed. Stop-loss can be set higher than the price for SELL orders and below the price for the BUY orders. This is a combination of buy stop and sell stop orders. Almost all brokers provide stop-loss.

Take-profit is used if you want to set a fixed level of profit. Similarly to the stop-loss, take profit is triggered automatically at a certain level. For SELL orders, the take-profit can only be below the price, and for BUY orders, it is higher than the price. This is a combination of buy limit and sell limit. Virtually all brokers provide take-profits.

Now you can use pending orders without problems. We recommend always using a stop-loss and take-profit. Stop loss limit our losses, and take profit allows us not to sit all day in front of the terminal.