The concept of pending orders can seem somewhat complicated to new traders. The way they are used or why they are used at all isn't that obvious compared to the standard trading orders (market orders). This guide makes sure that pending orders are explained properly, so that you can employ them to facilitate your trading strategy.
Pending orders help traders to automate the process of trading and to remain in the market while being not in front of their Forex terminals. There are four basic types of pending orders, two derived types (which are quite popular), and two complex types (which aren't very popular).
Buy Stop Limit is a type of order that combines the features of both Buy Stop and Buy Limit types of orders. It is used to place an order to buy a currency pair at a level that is above the current market price but only if the price is at or below the limit set by the trader. A Buy Stop Order is triggered the moment the price reaches the Stop set by the trader. But whereas Buy Stop becomes a market order to buy at any available price at the moment of execution, Buy Stop Limit becomes a limit order to buy at the specified or a better price.
For example, USD/CHF is currently trading at 0.9914. You think that if the price moves above 0.9940 it will establish an uptrend, and you want to buy the currency pair in that case. But you want to buy on a pullback and do not want to pay more than 0.9927 for the pair. In that case, put a stop at 0.9940 and the limit at 0.9927. This will ensure that the order will be triggered when the price reached 0.9940 but it will be executed only if the price is not above 0.9927 at the time of execution.
Buy Stop Limit allow you to
Important notice: The description above is based on the MetaTrader platform, where you have to place the limit (Stop Limit Price) below the stop (Price) when you are making a Buy Stop Limit order. That is opposite to the common description of this type of order that places the limit above the stop.
Sell Stop Limit is similar to Buy Stop Limit but combines the features of Sell Stop and Sell Limit types of orders. It is used to sell a currency pair at a level that is below the current market price but only if the price is at or above the limit set by the trader. If the price falls to the level where the trader has placed the stop, then the order will become a Sell Limit order to sell the pair at or above the limit set by the trader.
For example, you want to buy USD/CAD at the current price of 1.3738 but you are worried that the price may drop. You want to put a stop at 1.3640 but you are also not willing to sell the pair for less than 1.3670. Then you should open a Sell Stop Limit order with a stop at 1.3640 and a limit at 1.3670. That way, if the market goes against you, the pair will be sold when the price falls to 1.3640 but only if the price will be at or above 1.3670 when the order is executed.
Sell Stop Limit helps you to control your risk by setting the minimum price you are willing to sell at. That is a benefit that the regular Sell Stop type of orders does not have. But on the other hand, if the price will not bounce back to the limit level before the order is executed and continues to go lower, then your losses will be increasing unless you will intervene and sell manually.
Important notice: The description above is based on the MetaTrader platform, where you have to place the limit (Stop Limit Price) above the stop (Price) when you are making a Sell Stop Limit order. That is opposite to the common description of this type of order that places the limit below the stop.
Now with pending orders explained to you, it should be much easier for you to use them without too much trouble. It is always recommended to use
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