A pending forex order is an order to sell or buy at a specified price. Pending orders can be useful when traders are unable to continuously monitor the market or want to enter a trade when a certain price level is reached.
There are several types of pending orders:
- Buy Limit - an order to buy below the current market level to enter a trade when the price rises.
- Sell Limit - order to sell above the current market level for transaction entry at price decrease.
- Buy Stop - order to buy above the current market level for entering into deal when the price rises.
- Sell Stop is a sell order below the current market level for entering a position when the price decreases.
Forex pending orders are executed at the moment when the price reaches the level specified in the order.
What is the difference between a pending order and a market order?
The main difference between a pending and a market order: the time of execution. A market order is used to open a trade immediately at the current market price. A pending forex order allows you to specify a price at which you want to enter into a trade in the future.
Traders have a choice between using pending and market orders depending on their trading strategies, time and market situation. Decisions about use should be made with an allowance for the differences. We will dwell on them in more detail.
In addition to those mentioned above, we will note a few others: flexibility and guarantee of execution, as well as price level. Market orders provide immediate execution. They are suitable for traders who care more about speed of entry than a specific price level. Entry orders, on the other hand, give traders the flexibility to control the point at which they enter the trade by specifying a desired price level.
A pending forex order may not be executed. If the price does not return to that level, the order will remain outstanding. Market orders are usually executed immediately. The trader does not need to wait for the price to reach a certain level. Therefore, the market order is always executed.
At last, there are differences in the price level. Using the market order the trader does not specify a certain price level. He or she just wants to enter the deal at the current market price. A pending order works differently. The order will be executed only when the level is reached. Only then will the trader enter the trade.
Advantages of a pending Forex order
A pending forex order has a number of benefits. Such orders allow traders to automatically enter into a trade when a certain price level is reached. This is especially useful when traders are unable to continuously monitor the market or are not in the market when the desired price is reached.
These orders also help traders avoid making emotional trading decisions. Traders can pre-set a trade entry point and wait for it to execute without the interference of emotions such as fear or greed. Pending Forex orders are a planning tool. With them, traders can plan their trades and strategies in advance. It helps them structure their trading plan. Identify entry and exit points and control their risks.
Another important advantage is the flexibility in price level selection. Pending forex orders allow traders more flexibility in controlling their entry point into a trade. They can choose the best price level that suits their trading strategy and market analysis.
Disadvantages of pending forex orders
Forex pending orders have disadvantages. We will highlight three main disadvantages of this type of orders:
- Missing liquidity. As pending orders are waiting for the price to reach a certain level, there is a risk that the price will not reach the set level. This is often the case in a fast and volatile market. As a result, the order can remain unexecuted. A trader can miss a trade opportunity.
- Volatility. During volatile market conditions, pending orders may be executed at prices which are significantly different from those set. This can lead to unwanted losses for the trader.
- Multiple order opening. The use of multiple pending orders at different price levels can create difficulties in the management of open positions. This can lead to unexpected losses. Especially if prices are changing rapidly.
Like other Forex trader's tools, pending buy and sell orders have advantages and disadvantages. Traders will need to use the correct tools for each situation.
Forex pending orders on Metatrader 4 and Metatrader 5
In both the MT4 and MT5 platforms you can set up pending orders according to your trading strategy. Please make sure that you carefully check the parameters of the pending order before placing it, and take into account the current market situation.
In order to place a Forex pending order using Metatrader you must.
- Open the "Order" window;
- Select "Pending Order" in the "Type" field;
- After that it is necessary to specify the necessary type of the order: Buy Limit, Buy Stop, Sell Limit or Sell Stop;
- After having selected the order type it is necessary to specify the price at which execution will take place;
- Last step is to specify an order validity period.
Having executed all actions, it is necessary to press the button "Establish the order". Done, the pending order is set.
It should be noted that pending orders do not guarantee execution and may be subject to volatility and slippage during market fluctuations. Traders should therefore choose price levels carefully and consider the current market situation.