What is a Pending Order?

A pending order is an order to buy or to sell an instrument when certain pre-defined prices specified by the trader are met. Essentially, when placing a pending order a trader informs their broker that they only want their order executed if the market price reaches a certain level.

Pending orders fall into two categories, limit orders and stop orders.

Limit orders can only be executed at the limit price specified by the trader. There are two types of limit orders; a buy limit order instructs that an instrument is bought at a specified price or lower while a sell limit order instructs that an instrument is sold at a specified limit price or higher. Since Limit orders guarantee that an order will be filled within the specified limits or not at all, they are thus useful in preventing slippage. However, even though they may prevent slippage, they run the risk of not being filled at times of high volatility.

Stop orders instruct that positions are opened or closed when specified prices are reached and are widely used to lock profits and minimize losses. Buy stop orders are entered above the current market price and sell stop orders are entered below the current market price. Although stop orders are frequently confused with limit orders they differ in a key aspect; when the market price reaches the level specified by a trader a market order is then automatically placed. As such, at times of high volatility they may be affected by slippage and poor fills in certain market conditions.

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