Understanding the 4 Types of Pending Orders in Trading

A pending order is a type of order that is delayed. A pending order is an instruction to buy or sell currency automatically at a predetermined price. According to Portofolio Indonesia, this feature is highly recommended for traders with many activities who cannot monitor the market continuously. Let's discuss the types.

1. Buy Limit

A buy limit is an instruction to buy a currency pair when the price is below the current price. Traders delay the purchase until the price reaches a certain point below the current price. With a buy limit, traders hope the price will move down and touch the specified point so that the price will go up. The trader can delete the order without losing money if the price does not drop to the desired point.

In addition, the buy limit is also used by traders to buy at previously identified support levels. Support levels are price levels where a currency pair tends to bounce back after falling to that level. By placing a buy limit at the support level, traders can buy at a lower price and potentially profit when the price rises again.

2. Sell Limit

A sell limit is an instruction to sell a currency pair when the price is above the current price. Traders delay the sale until the price reaches a certain point above the current price. With a sell limit, traders hope the price will rise and touch the specified point so that the price will drop.

For example, if the EUR/USD currency pair is currently trading at a price of 1.2000, a trader can place a sell limit at a price of 1.2100. If the price then rises to 1.2100, the order will be executed, and the trader will sell the currency pair at a price of 1.2100 or higher.

By placing a sell limit, traders can sell a currency pair at a higher price and profit when the price drops again. In addition, a sell limit can also be used as a hedging or protection strategy if traders hold long or buy positions in a particular currency pair and want to sell at a certain price level to minimize losses.

3. Buy Stop

A buy stop is an instruction to buy currency at a certain price higher than the current price. Traders use a buy stop when they expect the price to continue to rise and touch the specified point so that they can gain a profit. Usually, a buy stop is placed above the resistance level to capture the potential for further price increases after the breakout from resistance.

In general, a buy stop is often used by traders who do breakout or trend trading, where they try to capture large price movements after the price breaks through strong resistance or trend lines. In this case, a buy stop can be used as a strategy to chase the trend or jump on the ongoing trend with the hope that the trend will continue to get a large profit.

4. Sell Stop

A sell stop is an instruction to sell currency at a certain price lower than the current price. Traders will use a sell stop when they anticipate that the price will continue to fall after reaching a certain support level. For example, if the price of a currency pair falls to a support level, and the trader anticipates that the price will continue to fall after breaking through that level, then they can place a sell stop below that support level. If the price then falls below the support level and reaches the price specified in the sell stop instruction, then the sell order will be triggered, and the trader's position will open automatically. This allows traders to take advantage of downward price movements and the potential profit from short positions.

So, those are the discussions about the four types of pending orders. This feature helps traders who have busy schedules or cannot monitor the market all the time but still want to take advantage of available trading opportunities.