A pending order is an instruction to buy or sell an instrument when certain preconditions specified by the trader are met. Essentially, when placing a pending order, a trader informs their broker that they do not want the current market price, but rather they only want their order executed if the market price reaches a certain level.
There are four types of pending orders available on the trading platforms:
- Buy Stop – buy provided the future "ASK" price is equal to the pre-defined value. The current price is lower than the value of the placed order. The type of order is typically placed in anticipation that the asset price, having reached a certain level, will increase.
- Sell Stop – Sell provided the future "BID" price is equal to the pre-defined value. The price level is higher than the value of the placed order. The type of order is placed expecting that the security price, having reached a certain level, will continue to decrease.
- Buy Limit – buy provided the future "ASK" price is equal to the pre-defined value. The current price level is higher than the value of the placed order. This type of order is usually placed in anticipation that the security price, having dropped to a certain level, will increase.
- Sell Limit – sell provided the future "BID" price is equal to the pre-defined value. The current price level is lower than the value of the placed order. Orders of this type are placed expecting that the asset price, having increased, will fall.