Buy Stop Order
A buy stop order is an order to buy a currency pair at a higher price than the current market price. This order is used when a trader expects the price to move in an upward direction. For example, if the current market price of EUR/USD is 1.2000, a trader can place a buy stop order at 1.2050, so if the price goes up to that level, the order will be triggered, and the trade will be executed.
Sell Stop Order
A sell stop order is an order to sell a currency pair at a lower price than the current market price. This order is used when a trader expects the price to move in a downward direction. For example, if the current market price of GBP/USD is 1.4000, a trader can place a sell stop order at 1.3950, so if the price goes down to that level, the order will be triggered, and the trade will be executed.
Buy Limit Order
A buy limit order is an order to buy a currency pair at a lower price than the current market price. This order is used when a trader expects the price to decrease and then rebound in an upward direction. For example, if the current market price of USD/JPY is 110.00, a trader can place a buy limit order at 109.50, so if the price drops to that level, the order will be triggered, and the trade will be executed.
Sell Limit Order
A sell limit order is an order to sell a currency pair at a higher price than the current market price. This order is used when a trader expects the price to increase and then decrease in a downward direction. For example, if the current market price of AUD/USD is 0.7800, a trader can place a sell limit order at 0.7850, so if the price goes up to that level, the order will be triggered, and the trade will be executed.
Example of Pending Orders in Forex Trading
Let's say you believe that the USD/CAD currency pair is going to decrease in value, and you decide to place a sell stop order at 1.2000. You set a stop loss order at 1.2050 to limit your potential loss if the trade goes against you, and a take profit order at 1.1950 to lock in your potential profit.
If the price of USD/CAD decreases as you expected and reaches 1.2000, your sell stop order will be triggered, and the trade will automatically execute, and your stop loss and take profit orders will also be activated. If the price goes up instead, and reaches 1.2050, your stop loss order will be triggered, and the trade will automatically close, limiting your potential loss to 50 pips. If the price goes down further, and reaches 1.1950, your take profit order will be triggered, and the trade will automatically close, locking in a profit of 50 pips.
