Differences in Instant Orders & Pending Orders for FX Trading
Differences in Instant Orders & Pending Orders for FX Trading – One of the first things you’ll need to learn about forex trading and the M4 trading platform is the difference between instant orders and pending orders. You may need to initiate either of these types of order throughout your trading, whether you’re trading independently or following forex signals.
Instant Trade Orders
Instant orders are orders that are immediately completed. They can be either a buy or a sell for any currency pair and they are initiated based on the current ask or bid prices. An instant order is often initiated by those who are currently tracking and analyzing their currency pair, but it requires a very good sense of timing on behalf of the trader.
Pending Trade Orders
Not all orders will be immediately engaged. Traders that are following signals or who have more sophisticated strategies will often put in trades that have more complex patterns and that are intended to initiate at a certain time. On MetaTrader4, these pending orders are initiated in nearly the same way, they simply have additional requirements written in when defining the trade. While an order is still pending, it can be modified as desired by the trader, or it can be canceled entirely without any penalty to the account. Here are a few definitions that you should know when dealing with pending orders:
- Good til cancel. A GTC order is any standing order that has conditionals, for instance a specific ask price. The GTC order will remain pending until that condition is met — and that condition may never be met. A GTC order’s benefits is that it’s highly specific: you’ll buy or sell the currency pair exactly when your conditions are right. It can be dangerous however because it will remain outstanding; a trader needs to do account management and be aware of their GTC trades so that they don’t risk accidentally overextending themselves.
- Stop orders. A stop order is a buy or sell trade that will initiate once the currency pair has reached its stop price. Stop orders are generally placed a certain amount away from the current market price so that the trader can pick up their trade at a specific point. Stop orders are a type of GTC trade as they will exist in pending until the stop price has been reached.
- Limit orders. A limit order is a buy or sell trade that initiates once the currency pair has reached its limit price; it is essentially the opposite of stop orders. Limit orders will operate as GTC trades until the limit price has been reached. Some traders have strategies for positioning limit prices and stop orders so that they can capture slightly more profit each trade.
- Take profit. A take profit is when the trade should actually capture profit. It is the price that the currency pair will need to reach for the trade to close. Setting a take profit is essential to many strategies; it ensures that the trader will not miss an opportunity (as the market does move quite fast) and it will make sure that they stick to their strategy. Without a set take profit, a trader may instead be tempted to let a trade ride in order to capture even more profit; this could result in the trade losing money instead.
- Stop loss. A stop loss is the counterpart to a take profit. A stop loss stops the trade once the market price has fallen to a certain amount. Stop losses are occasionally used instead of take profits in strategies. The benefits of the stop loss is the same as the take profit: it reduces the risk to the trader by ensuring that the trade is closed when it needs to. Many trades will use both a take profit and a stop loss to make sure that the trade does not linger too long in any single direction. Stop losses are generally placed fewer pips away from the current market price than the take profit, for obvious reasons.
- How To Trade Forex Market
- Trailing stop losses. A trailing stop loss is used in some advanced trading strategies and may be used in lieu of a take profit and a stop loss. A trailing stop loss essentially “trails” behind the current market price, making it so that the trade will close itself if the price falls too far from its current price; in other words, the stop loss changes to update itself on present market factors. A trailing stop loss that is set too close to market price can be dangerous, especially in times of volatility; it will close the trade quickly. Some traders will switch to a fairly lengthy trailing stop loss after they have already made a profit, to ensure that the trade doesn’t lose money, while still letting them potentially capture more in profit.
- Re-quoting. A trade may potentially switch from an instant trade to a re-quoted and pending trade, in the event that the trade initiated can no longer be filled based on the initial quote. This can happen for a variety of reasons: the volume may not be available or the price may have simply changed.
- Slippage. Slippage occurs when a trade is initiated but could not be filled at the actual requested price. There is a certain amount of slippage that can be considered tolerable even with the best market services. That being said, serious amounts of slippage can be used by less reputable markets, so traders should still be cautious about their slippage.
Whether you’re initiating a pending order or an instant order will depend on the strategy that you are using. Some traders initiate only instant orders because they are trading live; they are watching the market signals actively and deciding when they should buy or sell. While this is legitimate, it also requires a lot of attention and work; the trader simply cannot look away because the forex market operates too quickly. Even with instant orders, it’s still a good idea to have a stop loss in place; even traders who do not set take profits will usually have either a stop loss or trailing stop. This is because the market can shift faster than the trader can react.
Many traders will only work with pending trades; they will initiate trades based on specific market prices. However, opening a trade with a set price for the buy or sell can skip a trade entirely, if those exact conditions aren’t met. For that reason, some traders will initiate a trade as an instant trade — based on current market price — and also add in a take profit and stop loss. All of these things depend on the trader’s own strategy, their risk tolerance, and their ability to monitor the market.