in the past few years, Technology has simplified how trading works. Unlike in the past, millions of people have access to financial assets that are traded on Wall Street and the City.
At the same time, bone trade Approach Automation done also. For example, the process of opening deals has been simplified.
For example, there is no longer a need to manually open (or close) your orders, but you can set the trading software to do it for you. This is useful, isn’t it? But as we shall see, there are drawbacks as well.
In this article we will look at pending orderswhich are the methods of executing transactions.
What are pending orders?
A pending order is a type of execution where You direct the broker to open a deal Later When certain conditions are met. These orders differ from common market orders in that trades are executed instantly.
For example, suppose a company’s stock is trading at $10. Even though you are long the stock, you think it will drop to $8 before climbing. So, instead of opening a market order at $10, you open an order to execute a buy trade when the price drops to $8.
as a result of, No need to stay and wait for the trade to be executed.
Similarly, if you think the stock will go up to $12 and then go down to $5, you can open such a pending order.
How long does a pending order take?
A common question is how long does it take for a pending order to be executed. It always depends on whether the asset will transfer at your specified price. For example, if you set a sell stop at $5 for a stock that is trading at $6, the trade will only open if the stock drops to $5.
But, Sometimes, it’s a good idea to define the period When the pending order is cleared. as a day trader, You can direct the broker to vacate the pending ranking If the trade is not executed before the end of the day.
After opening a pending order, it will only be closed if it goes to stop loss or take profit or you stop it manually. It can also be stopped by a margin call.
Growing popularity
Pending orders have become very common in the financial market. In fact, they are used by both long-term equity investors and day traders.
These commands are easy to execute. For example, in MT4 or 5 all you have to do is go to a new order and select the type of order where the default is a market order. You have to click on the order type and then select Pending orders, as shown below.
You can repeat the same process on other trading platforms.
Pending orders vs. market orders
The common question is Whether pending orders are better than market orders and vice versa. In fact, both types of orders have advantages and disadvantages.
to market demand, The main benefit is that the system It will always be filled. this Because of the large liquidity in the financial market. For pending orders, there is a possibility that the order will not be executed. This is because the price has to reach the place you set for it to be filled.
the The biggest deception of market orders is known as slippage. This is a situation where the price at which you place the order differs from where it is eventually executed. For example, you can place a buy trade at $10 and then the broker will execute it at $11. This is amazing Happen or occur Mostly during periods of high volatility.
Why is my order still pending?
A common question is why a market order remains pending for some time after it opens. This happens for a number of reasons.
The most common reason is when There is no other arrangement on the other side. When you buy a stock, there must be a counterparty on the other side. If there is none, the broker will leave it hanging for a while.
Related “ Basics of supply and demand
You can prevent such a situation by focusing only on highly liquid financial assets. In stocks, you can focus on liquid assets such as Apple and Microsoft. In currencies, you can focus on liquid pairs such as EUR/USD and GBP/USD.
Pros and cons of pending orders
Don’t waste time
on the other side, The biggest benefit is for pending orders is that you don’t have to wait for the target price that will be reached.
In other words, if you think that a buy position will be opened when the price moves to the 50% Fibonacci retracement, then there is no need to wait for this to happen. instead of it, You can set the trade And leave it to trade until you reach the target.
Prevent slipping
Another benefit of pending orders Is that them Help prevent slipping. While slippage occurs in both types of orders, it rarely occurs in periods of pending orders.
Miss the good deals
There are downsides to pending orders. For example, sometimes, You can miss out on a deal by a small margin. For example, if you place a Buy Stop at $10.50, the stock can reach $10.60 and then reverse. As such, while your thesis is valid, a small point can cause you to miss an opportunity.
Related “ Watch out for FOMO in trading
Types of pending orders
There are several types of pending orders. The most popular of them Stop buying and selling and limit buying and selling.
Limit purchase
Buy limit is an order It is placed below the price in anticipation of an uptrend. For example, if a company’s share price is trading at $100 and you think it will drop to $95 and then go up, you can initiate a buy limit trade.
In this case, a buy trade will be initiated at $95. If your thesis is successful, you will start earning. However, if the price continues to fall, you will lose money.
sell limit
Limit trade Quite the opposite of the buy limit. If the stock is trading at $100 and you think it will go up to $110 and then go down, you can place a sell limit at $110. Again, if I’m correct, the short price is at $110.
Buy stop
Buy Stop is a trade placed in the general direction of the trade. For example, if a stock is trading at $100 and you think it will continue to rise, you can place a buy stop order at $110.
But why would you place such a trade? Occasionally, You can get convinced that the bull run will continue As long as the asset goes against a major trend.
sell stop
Sell Stop is a short trade ie Put it below the current price. For example, if an asset is trading at $100 and you expect the trend to continue once it moves below $95, you can make such a trade.
exist other kinds of pending ordersIncluding buy stop limit (BSL) and sell stop limit (SSL). Buy Stop Limit combines a stop order and a buy limit order. On the other hand, a Sell Stop Limit is a stop order for setting a Sell Limit.
What is a protection order?
The protection order is just that Cancels the buy or sell order A financial asset such as a stock Then re-submit it as a specific order.
Commands like this happen In periods of large market fluctuations. Brokers execute these orders to protect themselves from order completion at the worst time.
summary
Pending orders are widely used in the financial market. In fact, most professional traders prefer using them instead of market orders. But, As a new trader, we recommend that you spend a good amount of time learning about how these requests work.
You should also use a demo account to practice before entering them into your real account.
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