Forex trading is all about timing. You need to buy or sell at the right time to make a profit. But, what if you can’t keep an eye on the market all the time? That’s where pending orders come in. In this article, we will explain what pending orders are and how to use them in forex trading.
What is a pending order?
A pending order is an instruction to buy or sell a currency pair at a specific price in the future. It is a type of order that is not executed immediately but is held in the system until the market reaches the specified price. Pending orders are useful for traders who cannot monitor the market all the time but want to enter or exit a trade at a specific price.
Types of pending orders
There are four types of pending orders in forex trading:
1. Buy limit order: A buy limit order is an instruction to buy a currency pair at a price lower than the current market price. It is used when a trader believes that the price of a currency pair will fall before rising again.
2. Sell limit order: A sell limit order is an instruction to sell a currency pair at a price higher than the current market price. It is used when a trader believes that the price of a currency pair will rise before falling again.
3. Buy stop order: A buy stop order is an instruction to buy a currency pair at a price higher than the current market price. It is used when a trader believes that the price of a currency pair will continue to rise.
4. Sell stop order: A sell stop order is an instruction to sell a currency pair at a price lower than the current market price. It is used when a trader believes that the price of a currency pair will continue to fall.
How to use pending orders in forex trading?
Now that you know the types of pending orders, let’s look at how to use them in forex trading.
Step 1: Analyze the market
The first step is to analyze the market and identify the currency pair that you want to trade. You should use technical analysis and fundamental analysis to identify the entry and exit points.
Step 2: Set the pending order
Once you have identified the entry and exit points, you need to set the pending order. To do this, you need to select the type of pending order that you want to use and enter the price at which you want to enter or exit the trade.
Step 3: Monitor the trade
After setting the pending order, you need to monitor the trade. If the market reaches the specified price, the pending order will be executed, and the trade will be entered or exited.
Advantages and disadvantages of pending orders
Pending orders have several advantages and disadvantages that traders need to consider before using them.
Advantages:
1. Allows traders to enter or exit a trade at a specific price.
2. Can be used to automate trading, eliminating the need to monitor the market all the time.
3. Helps traders to avoid emotional trading decisions.
Disadvantages:
1. The market may not reach the specified price, resulting in the order not being executed.
2. Pending orders may be subject to slippage, which is the difference between the specified price and the executed price.
3. Pending orders may expire if not executed within a specified time frame.
Conclusion
Pending orders are a useful tool for forex traders who cannot monitor the market all the time and want to enter or exit a trade at a specific price. Traders should use technical analysis and fundamental analysis to identify the entry and exit points and set the pending order accordingly. However, traders should also consider the advantages and disadvantages of pending orders before using them.
