A pending order is an instruction given to a broker to open a trade once specific conditions are met, such as reaching a particular price. Unlike instant execution orders, which are executed immediately at the current market price, pending orders allow traders to set precise entry points, giving them greater control and flexibility, especially when they are not actively monitoring the market.
Buy Limit Order: This is used to buy at a price lower than the current market price. The order will only be executed if the price falls to or below the set level.
Sell Limit Order: This is used to sell at a price higher than the current market price. The order will only be executed if the price rises to or above the set level.
Buy Stop Order: This is used to buy once the price rises above the current market price, typically placed above a resistance level.
Sell Stop Order: This is used to sell once the price drops below the current market price, typically placed below a support level.
Scenario 1: Buy Limit Order
A trader believes a stock, currently at $50, will drop to $48 before rebounding. Instead of watching the market continuously, the trader sets a buy limit order at $48.
If the stock reaches $48, the order is automatically triggered, and the trader enters a buy position.
If the price never hits $48, the order remains pending or expires based on the trader’s settings.
Scenario 2: Buy Stop Order
A trader expects a stock to break above $52, a resistance level, before continuing upwards. They place a buy stop order at $52.
If the price rises to $52, the order is triggered, and a buy position is opened.
If the price does not reach $52, the order remains pending.
Automation: Traders can set orders in advance without needing to monitor the market constantly.
Precision: Pending orders allow traders to enter trades at specific price levels, optimizing their strategy.
Flexibility: Traders can set orders for different market conditions, such as during price retracements or breakouts.
Pending orders give traders the flexibility to execute their trading strategies at specific price points without being glued to the screen. Whether it's a buy limit, sell stop, or other types, pending orders help traders automate their trades and manage their positions more effectively.