Pros and Cons of Market Execution and Pending Orders in Forex

Not all orders in forex are made equal; traders have the option of placing an order that will immediately fill or create a pending one. Both options are there for different purposes.

More active traders will typically always opt for instant execution since their strategies rely on getting filled as quickly as possible for the best entry with no slippage.

Traders relying on a slower approach where they rather wait for the price to get to a specific area are likely to take advantage of pending orders, simultaneously accepting the possibility of not being filled. 

The primary reason for this entry method is it prevents the need for one to observe the charts constantly.

The ultimate consideration naturally is which type of orders one should use in forex. Like many things, there is no universally correct answer, especially because the type of execution is dependent on several factors, which this article will broadly cover.

Differences between a market execution and pending order in the forex

Nowadays, some platforms have expanded on this concept with slight variances, though in simple terms, a forex trader will either instantly enter a position at the current price or place a pending order at a level they hope the market eventually reaches. 

We can only assume market execution existed before pending orders since it is natural to think the convenience of online trading means one should place a trade without waiting.

Nonetheless, each of these methods can drastically affect a trader’s performance depending on their strategy, analysis, etc. 

Of course, the main advantage of immediate execution is, for the most part, there is a guarantee (assuming there is no requote or slippage) the trader will execute a position at the current price based on their chosen volume.

With a pending order, a trader doesn’t need to be at their charts constantly should it eventually execute. The biggest shortcoming with pending orders is there is no guarantee the trader will receive a fill at their predetermined levels. 

The slippage issue

Let’s consider slippage (which is an order occurring at a different price than what was requested), something that can happen whether using market or pending orders. Some traders are under the impression that the former is more susceptible to this event because of the instant execution.

However, there is no guarantee that one won’t be ‘slipped’ when using pending orders, even though a trader pre-determines where they would like to enter (presuming that price reaches these levels). 

Hence, most trading platforms should offer a form of slip protection stating the maximum deviation in pips that traders are happy for the price to remain in the rare event of slippage. If the market breaches above or below this level, the order will not execute.

Regardless, let’s dive deeper into the specific advantages and drawbacks of each method and which traders will benefit from either.

Pros and cons of market execution

The main plus of immediate execution is simple to understand. This type of order assures a fill and allows for traders to take advantage of potentially entering right before a market moves without waiting.

Through this approach, there is no worry about missing a trade, though this is supposing the trader has entered strictly according to their strategy’s entry rules. Scalpers and day traders are big proponents of instant orders since they spend ample time on the charts to the point where they can hardly miss a set-up.

It is not to say others do not enter the market in this method, though they spend less time actively trading.

Some news traders will usually use instant execution because, in this scenario, it’s even more crucial to have an immediate fill since the price can move fast within seconds. So, what’s the bad part?

For all the good things, the biggest problem with market execution is traders are vulnerable to FOMO (fear of missing out) or chasing price. It is easy to over-trade these orders because of how convenient they are. 

Also, even for high-frequency traders, it is possible to miss an entry where price has moved considerably from this point, resulting in entering at a much less favorable area. Lastly, once an order is placed, that becomes a commitment with very little chance of canceling the position at a zero loss.

Pros and cons of pending orders

The biggest advantage of pending orders is they foster discipline and patience instead of chasing price, something that can easily occur when using market execution. 

There isn’t a clear set of traders entering in this way because some trading systems fare well in either. For example, some news-trading strategies need buy and sell pending orders rather than the instant ones.

Others who trade using some form of supply and demand or even support and resistance may use this kind of execution according to their beliefs of what the price might do in specific areas.

Also, another good thing is through pending orders. There is no commitment only until the price reaches the preset level. Therefore, it is easier to change your mind and cancel the order (or set expiry date) at any time should one feel a trade is not worth considering.

The main drawback is one is likely to miss a trade should the price not reach their pending order. Traders heavily using momentum when analyzing will stay away from pending orders. The reason is they need to monitor the momentum in real-time actively and have the freedom to either take a position or not. 

This sort of order would be an assumptive decision to make without seeing the current conditions when the price reaches specific levels.

Final word

Market and pending execution are just the different ways forex traders commit into a position. Ultimately, no absolute right or wrong method exists because, as this article has exemplified, there are too many variables to consider.

On the one hand, market execution guarantees an order at the current price (assuming there is no slippage and the trader is entering according to their rules). Now the downside is one is far likely to over-trade or chase the price through this avenue.

With pending orders, it’s more a case of discipline and waiting for the price to come to you. A trader can simply walk away from their computer using this approach. However, this patience does come at the expense of missing what may turn out to be a really profitable move.