Monday, June 17, 2024

Passive order

A Passive order is a transaction order where the order price is different from the market price.

An order is passive when a trader sets a price that a currency pair must reach before continuing to buy or sell.

A passive order occurs when the price set by the trader is different from the bid or ask price .

Passive orders set a new price, create a new level in the order book and wait for other participants to touch it.

There is a time limit for passive orders.

If the trade is not executed at the specified price within the given time, the order expires and the trader must place a new order.

The farther the price is from the market price, the more passive it is to place an order.

In contrast, an aggressive order is when a trader executes a buy or sell order immediately.

Passive orders wait for the price to arrive.

This is the opposite of aggressive orders chasing price.

What is a passive order?

Passive orders can be placed when buying or selling stocks or other instruments.

  • For a purchase , the price is below the asking price.
  • For the sale , the price is set above the bid .

Suppose the buying price of EUR/USD is 1.1050 and the asking price is 11052.

When traders want to buy a currency pair, they can decide to use passive orders.

They can place orders at 1.1049.

Since the ask price is 1.1050, the passive trade will not be executed immediately.

When buying a currency pair at 1.1049, the order will be filled.

Traders can cancel orders before they are filled.

One disadvantage of this order is that it may not execute at the desired price. However, traders using passive orders may wait for an active order to appear and accept the specified price.

What is the difference between passive instructions and active instructions?

Passive ordersProvide market liquidity.

Unlike passive orders, aggressive orders are defined by the trader at a price at which the trade can be executed immediately.

Aggressive orders occupy market liquidity.

Aggressive orders occur when the order price is close to the market price.

Unlike passive orders, aggressive orders will be executed because the price will be set at the bid/ask price or above/below the price as long as there is sufficient volume in the market.

If you want to learn more foreign exchange trading knowledge, please click: Trading Education.

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