A pending order is an instruction a trader gives to a broker to open a position at a specified price in the future. In other words, a financial instrument is bought or sold when its market price reaches the level set in the order. There are four types of pending orders:
Buy Limit. This order is executed when the Ask price drops to a level lower than the price at the time the order was created. Traders use this when they expect the price of a financial instrument to decrease temporarily before rising again.
Buy Stop. This order is executed when the Ask price reaches a specified level that is higher than the price at the time the order was created. This is used when traders anticipate the continuation of an upward trend once a certain price level is surpassed.
Sell Limit. This order is executed when the Bid price rises to a level higher than the price at which the order was placed. The strategy behind this order is to wait for the instrument’s price to rise to a certain level, triggering the order, and then expecting the price to decrease afterward.
Sell Stop. This order is executed when the Bid price falls to a level lower than the price at the time the order was placed. This type of order is used in anticipation of the price dropping to a certain level and the continuation of a downward trend.