Pending Order (Limit & Stop Order) Sell Limit, Buy Limit, Sell Stop, Buy Stop

Trading requires you to understand many different concepts, including lot size, pip value, and technical analysis, among many other things. Order types also fall into the many things you need to grasp to become profitable in the financial market.

As a trader, you may do an excellent analysis of your charts, but if you do not know how to place your orders, you may experience losses or miss entries.

Pending orders, such as limit and stop orders, are very common in trading and often confuse most traders. Prop trading firms usually make it easy for beginner Forex traders to understand these order types, ensuring they maximize their returns.

In this article, we will also take you through the different types of pending orders, ensuring you understand how they impact your trading in the financial market.

What are Pending Orders?

Pending orders are a set of instructions provided to the broker to buy or sell a currency pair at a specific price in the future. Unlike market orders, which are executed immediately. Pending orders are queued and triggered when the market reaches the desired price level.

These orders usually give traders more control over the Forex market, especially when prices are volatile. Many traders also prefer using them to avoid watching the market for long hours. Traders can simply set their entry and do other things while they wait for the trade to be executed. This ensures they do not miss potential entries. 

Pending orders are divided into 2 main types, which is;

• Limit Orders: These are orders set to buy below or sell above the market at a specific price.
• Stop Orders: These are orders set to buy above or sell below the market at a specific price.

Limit Orders

Limit orders can be divided into two categories: Sell limit orders and Buy limit orders to help traders further tailor their strategies according to the market condition.

Sell Limit Order

This type of order is usually placed above the current asset price. When a trader is confident that the market will reverse when it gets to a certain point, they can use the sell limit order. By using this order, the trader aims to sell the currency pair at a premium or higher price to maximize their gains.

Example: A trader has spotted a potential entry in GBP/USD but does not want to execute the trade at the current exchange rate, which is 1.4500. He wants to sell at 1.4520. Instead of waiting for the price to reach that level, he will place a sell limit order. Once the price hits 1.4520 or above, the trade will be executed beautifully and automatically, allowing the trader to yield more profits if the trade goes in his favour.

Buy Limit Order

The buy limit order is set below the current price of an asset. If a trader believes the price will fall before rising again, they can take advantage of this order type. By using a buy limit order, the trader aims to buy at discount or at a lower price to increase his returns.

Example: A trader wants to enter a long position on EUR/USD, but the price has not reached his desired position. If the current market price of this asset is 1.3520 and he wants to enter the trade at 1.3500, he will set a buy limit order at 1.3500. Once the price reaches this level or below, it will automatically be executed. If the price does not get to 1.3500, the order will fail.

Pros and cons of Limit Orders

Pros:

• Allow traders to sell higher and buy lower, maximizing their overall returns.
• Give the trader control over the market, ensuring the asset is not bought or sold for less than the desired price.
• Minimizes the risk of being stopped out by ensuring traders take entries at the correct level.

Contras:

• The order may not be executed if the price fails to rise or fall to the predetermined position.

Stop Orders

This is the second type of pending order and can be divided into two. That is, sell stop order and buy stop order.

Sell Stop Order

The sell-stop order is normally set below the asset’s current price. This order is used to protect profits and to limit losses. Once the predetermined price is reached, the sell-stop order becomes the market order.

Example: Suppose you are holding a long position in the GBP/USD pair, trading at 1.2420. You are worried about downside risks and want to protect your account from significant losses. So, you decide to use a sell-stop order as a risk management tool. You feel that if the price falls to 1.2400, it indicates a bearish continuation. If the price gets to 1.2400, your sell stop order will be triggered and converted to a market order, ensuring your long position is sold at the best price.

Buy Stop Order

This order type is set above the current exchange rate of an asset. Traders will use this order type when they believe that the price of an asset will continue going up. The buy-stop order also becomes a market order once reached, just like the sell-stop order.

Example: Suppose you want to buy EUR/USD, which is currently trading at 1.2520. You feel that if the price rises to 1.2540, the pair will continue in an uptrend. So, you will set your buy-stop order at 1.2540, and once it is hit, your trade will be executed.

Pros and Cons of Stop Orders

Pros:

• Prevents losses by triggering a buy or a sale once the price rises or falls to a certain level.
• Eliminates the need to watch the market for long hours.

Contras:

• Stop orders may be triggered by short-term volatile movements, resulting in unnecessary buys and sell.

Limit Orders Vs. Stop Orders

Prop Trading Firms and Pending Orders

Prop trading firms usually rely on sophisticated tools and trading strategies to ensure their traders benefit maximumly. These firms fund their traders and allow them to utilize pending orders to manage risk effectively.

Traders can use buy-stop orders in short positions and sell-stop orders in long positions to protect their trading capital. Prop firms combine the advantages of different order types with high liquidity, ensuring traders trade with low spreads. This, in turn, boosts returns and significantly minimizes losses. 

Prop trading firms also provide fast order execution, allowing traders to buy and sell at the intended price level. These pending orders allow traders to capture small price movements within seconds, yielding huge monthly profits.

You also get to enjoy a conducive trading environment when trading with prop firms. In Audacity Capital, you will get all the trading resources you need to become profitable. 24/7 support is also provided to all traders, ensuring they have a smooth Forex trading journey. To get your funded account now, click here.

Conclusion

Pending orders consist of limit orders and stop orders. Limit and stop orders are further subdivided into buy limit, sell limit, buy stop, and sell stop orders. These orders have their characteristics, advantages, and disadvantages, but the most important thing is to know how to apply them in your trades to improve your returns.

Proprietary trading firms can make it easy for traders to utilize these pending orders effectively for profitability. Prop firms provide advanced tools, better risk management plans, and high liquidity, providing a perfect environment for beginner and professional traders alike.

Audacity Capital funds its traders up to $2 million and provides trading resources, risk management strategies, and fair profit sharing, ensuring their traders are 100% satisfied. If this sounds like something you want, click here to get started with the ability challenge.

FAQs

Is It Really Necessary to Use Pending Orders When Trading?

No, using pending orders in trading is not necessary. You can execute your trades manually, but pending orders like limit orders will ensure you execute the trade at the intended price. They minimize the risk of opening a trade slightly above or below the desired price.

Does a limit order guarantee the Exact Price at Which the Trade Will be Executed?

No, a limit order does not guarantee that the trade will be executed. If the price does not reach the predetermined price, the limit order will fail.

Why Might a Trader Be Interested in a Proprietary Trading Firm?

Prop firms offer several unique advantages to traders. First, a trader gets access to huge trading capital, professional mentorship, and trades in an environment where they can be potentially profitable.