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Pending Orders in Forex Trading

admin on May 16th, 2010

The concept of the pending orders can seem somewhat complicated to the new Forex traders. The way they are used or why they are used at all isn’t that obvious compared to the standard trading orders. Pending orders help traders to automate the process of trading and remain in the market, while being not in front of their Forex terminals. There are 4 basic types of pending orders and 2 derived types (which are quite popular):

Buy Limit is used if you want to buy a currency pair (open a long position) at a level, which is below the current price. For example, EUR/USD is currently trading at 1.2378, you think that it can reach as low as 1.2300 and then it will rise. If you want to have an automatically triggered buy order at 1.2300 in this case you should use a Buy Limit pending order.

Sell Limit should be used when you want to sell a currency pair (open a short position) at a level, which is above the current price. For example, GBP/USD is currently trading at 1.4531 and you think that if the currency pair reaches 1.4700 it will surely go down after that. If you want your broker to enter a short position at 1.4700 in this case you should use a Sell Limit pending order.

Buy Stop is a pending order to buy a currency pair (open a long position) at a level, which is above the current price. For example, USD/JPY is currently trading at 92.46; you think that if the currency pair goes up to 92.55 it will trigger an upward trend (e.g. a major resistance level will be broken). If you want to have a long position at 92.55 automatically in this case you should use a Buy Stop pending order.

Sell Stop is a kind of a pending order used to sell a currency pair (open a short position) at a level, which is below the current price. For example, EUR/JPY is currently trading at 114.28 and you believe that if the pair declines to 113.40 it will trigger a strong bearish movement (e.g. a major support level will be broken). If you want to have a short position open automatically at 113.40 in this case you should use a Sell Stop pending order.

Stop-Loss is used to prevent an excess loss on a position. It’s automatically triggered whenever the price reaches a designated level. It can only be set to the level above the open price for the short positions and to the level below the open price for the long positions. It’s a combination of Buy Stop and Sell Stop pending orders. Almost all Forex brokers feature trading platforms that provide an opportunity to set stop-loss as a simple parameter of a position.

Take-Profit is used to close a position with a satisfactory amount of profit. Like stop-loss, it’s triggered automatically at a certain level. It can only be set to the level below the open price for the short positions and to the level above the open price for the long positions. It’s a combination of Buy Limit and Sell Limit pending orders. Almost all Forex trading platforms allow setting a take-profit as a simple parameter of a position.

Now you should be able to use pending orders without too much trouble. It’s always recommended to use stop-loss and take-profit orders and it’s sometimes more prudent to use stop/limit orders to enter positions, especially when you expect a market to retrace to a certain level before continuing its trend. If you have any questions or comments about pending orders and their use in Forex trading, please, use the form below to post them.