Pending Orders in Forex: 4 Types & How They Work

Forex is one of the most liquid components of the global financial markets, with traders executing approximately $2 trillion worth of trades daily. In the last couple of years, forex has turned into a popular trading avenue for newcomers, meaning that learning the basic features of FX trading, particularly when it comes to the pending order step of investing, is more important than ever before.

So, what are pending orders, and how many types are there?

What Are Pending Orders?

In forex trading, a pending order is the trader's order to buy or sell a currency pair at a later time, when it goes above or below a certain price.

For example, if you are trading the USD/CAD currency pair, and you want to exit your position at a designated price of 1.2899, you will place a sell limit instruction on your order (we will get to that in a moment).

This makes the process more manageable and convenient than sitting in front of your computer and waiting for your price target. Plus, during some trading sessions, you will notice that volatility can be immense or movements can be rather tepid. It all depends on what you are trading and when you are participating in the forex market. The fast and furious ticks can be either helpful or challenging, depending on your circumstances.

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4 Types of Pending Orders

There are four types of pending orders when trading currency pairs. Each type of pending order will carry out a specific function and serve a different purpose, whether you are buying or selling. Pending orders may potentially make your forex trading endeavors more fruitful, especially when you are not looking to trade actively every day.

Here are the four types of pending orders:

1. Buy Limit

A buy limit order consists of buying an asset at or below a specified price. This feature lets traders control the price of the position they enter rather than paying a higher cost at the entry point.

2. Buy Stop

A buy stop order will result in the trader purchasing a pair when it hits a pre-specified price, typically above the current market price.

It might seem like a counterintuitive mechanism (why would you want to buy at a price higher than what the market is showing?), but the aim is to take advantage of an upward movement in the asset's price. In addition, buy stop orders can be utilized to shield against unlimited losses of uncovered short positions.

3. Sell Limit

A sell limit order will involve traders selling your securities at a specific price or higher. This is used for investors who have a target price in mind and want to execute an order that enables the trader to take potential profits or limit losses.

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4. Sell Stop

A sell stop order is another type of pending order to sell at a market price. The one notable difference is that it might result in a shift to the market order, meaning there could be some slippage in the order (the difference in the expected price and the actual price you receive upon the execution of the trade).

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Final Words

Forex is a fast-paced trading environment, whether you are working with major currency pairs (EUR/USD or GBP/JPY) or the exotics (EUR/TRY or USD/NOK). This is why many traders opt to use pending orders, as they can serve a variety of different purposes, from buying to selling.

Instead of waiting for the best prices, you can make the whole process much easier and more efficient with pending orders, as they may help you obtain your desired price targets or limit your losses.