Pending Orders

In our last video, we explained what types of orders are available and divided them to market orders and pending orders. Today, we are to analyse the subcategories of pending orders.

There are pending orders to enter the market and this means that a certain condition has to be met for the position to be initiate. There are four types of pending orders to enter the market.

The first pending order to enter the market is the buy stop. This is a pending order to buy at a price that is higher from the current market price. For example, let’s assume that the EUR/USD is currently trading at 1.1110. A buy stop would be a pending order to start buying EUR/USD once it reaches 1.1120.

The second is the sell stop. This is a pending order to sell at a price below the current price. For example, if the EUR/USD is currently trading at 1.1110, a sell stop would be a pending order to start selling once the EUR/USD’s price reaches 1.1100.

The third is the buy limit. This is a pending order to buy at a level below the current price. For example, let’s assume that EUR/USD is currently trading at 1.1110. A buy limit would be an order to start buying the EUR/USD once it reaches 1.1100.

The last one is the sell limit. A sell limit is a pending order to sell at a level above the current price. For example, if the EUR/USD is currently trading at 1.1110, then a sell limit would be a pending order to start selling the EUR/USD once it reaches 1.1120.

Besides pending orders to initiate a position, there are also pending orders to exit, to close a position. The main ones are three.

The first is the stoploss. The stop loss is a pending order to exit if the market moves in the opposite direction of your position. It is set at a specific level in the opposite direction of your trade by a certain number of pips. Practically, the stop loss should be understood as a safety net for the trader. If the market turns against the open position, the stop loss will be activated, thus saving the trader’s funds. On a more fundamental level, the stop loss order would also be the answer to the question how much the trader is willing to lose in a particular trade.

The second is the take profit. This is an order to exit if the market moves by a predetermined distance in the direction of your position. You set a take profit at a specific level you want to realise profits. So, on a fundamental level the take profit answers the question how much the trader is planning to gain on the particular trade.

The third is the trailing stop . The trailing stop is a modified stop loss order that, as long as the price moves in the desired direction, the stop-loss order automatically follows the market by a specific distance. For example, in a long position, I can place a trailing stop which is set at 20 pips distance below the price. When the price moves 10 pips in the desired direction, the stop loss will also move 10 pips in the same direction.

So those are the pending orders. In the next video, we’ll be discussing the meaning of the bid price, the ask price and the spread along with the swap.