Risk Academy
A buy above the price and a buy below it. Both can be right.
There are four basic pending orders and most explanations list them like vocabulary, which is why nobody remembers which is which. There are really only two ideas, and once you have them the four names stop needing to be memorised at all.
The two ideas
Limit = a better price
You are waiting for the market to come to you. A limit order always sits on the side that would improve your entry: below the price if you are buying, above it if you are selling.
Stop = a trigger first
You are waiting for proof before you commit. A stop order always sits on the side that would confirm the move: above the price if you are buying, below it if you are selling.
| Limit — a better price | Stop — a trigger first | |
|---|---|---|
| Buy | Buy Limit below the price you want to buy cheaper than it is now | Buy Stop above the price you only want in if it breaks higher |
| Sell | Sell Limit above the price you want to sell dearer than it is now | Sell Stop below the price you only want in if it breaks lower |
Why anyone would buy higher
The Buy Limit is intuitive: a cheaper entry is obviously better. The Buy Stop is the one that confuses people, because it deliberately buys at a worse price than the one available right now. That is the point of it.
A Buy Limit is a bet that the price comes back. A Buy Stop is a bet that it does not, and that going through a level is itself the signal. You are paying a worse price in exchange for not being in the trade unless it happens. Traders who work from breakouts use one; traders who work from pullbacks use the other. Neither is correct in the abstract, and that is why both exist.
What a pending order does not promise
- A stop order becomes a market order the moment it triggers. It takes the next available price, which in a fast market is not the trigger price. The trigger is where it wakes up, not where it fills.
- A limit order fills at your price or better, but only if the price actually trades there and there is something on the other side. Price touching your level is not the same as your order being filled.
- A gap steps over both. If the market opens past your level, a stop triggers into the gap and a limit may be skipped entirely.
- Pending orders sit on the broker's server, not your device. That is usually what you want, and it also means they can trigger while you are asleep, including through a news release.
- They expire the way you told them to. MT5 offers Good till cancelled, Today, and a specified date and time. A forgotten GTC order is a position waiting to open on a market you stopped watching.
The two MT5 adds
MT5 carries six pending types rather than four. The two extra ones combine both ideas, and they are worth knowing about even if you never use them:
Buy Stop Limit places a Buy Limit for you once the price reaches a higher trigger. You are saying: if it breaks up, then start waiting for a pullback to this level. Sell Stop Limit is the mirror.
They are a trigger and a better price in one instruction, which also means two ways to end up with nothing: the trigger may never come, and if it does the limit may never fill.
Before you place one
- Say out loud which of the two ideas you are using. If you cannot, the order is a guess about direction rather than a plan.
- Size the position from the stop distance, not from the entry. A pending order fixes your entry and changes nothing about your risk on its own.
- Check the expiry, and check whether the level sits on the other side of a scheduled release.
- Remember that the margin is only reserved when the order actually opens a position, not while it is pending.
That last one is the link between this page and the numbers at the top of your platform: balance, equity, margin and free margin.
Size it before you place it
Educational content only, not financial advice. Nothing here is a trade idea and no price level on this site is a recommendation. Order behaviour, expiry options and execution vary by broker and by instrument.