Passive Order
19 hours agoA passive order is a type of trading order where the order price differs from the current market price. It is considered passive when traders establish a price that the currency pair must reach before proceeding with a buy or sell transaction.
A passive order occurs when a trader sets a price that is not aligned with the bid or ask price. By doing so, the trader creates a new price level in the order book, waiting for other market participants to reach that price.
There is a time limit associated with passive orders. If the transaction is not executed at the specified price within the designated timeframe, the order will expire, and the trader will need to place a new one. The further the set price is from the market price, the more passive the order becomes.
In contrast, aggressive orders are executed immediately by traders who want to buy or sell without waiting. A passive order, on the other hand, waits for the market price to reach it, which is the opposite of an aggressive order that pursues the price.
Passive orders can be placed when buying or selling stocks or other financial instruments. For a buy order, the price is set below the ask price, while for a sell order, it is set above the bid price.
For example, if the bid price for EUR/USD is 1.1050 and the ask price is 1.1052, traders wishing to buy the currency pair might opt for a passive order by placing a buy order at 1.1049. Since the asking price is 1.1050, this passive order will not be executed immediately. It will be filled when the currency pair is purchased at 1.1049. The trader also has the option to cancel the order before it is executed.
One drawback of passive orders is that they may not be executed at the desired price. However, traders using passive orders might be waiting for an aggressive order to come in and accept their specified price.
What’s the difference between a passive order and an aggressive order? Passive orders contribute to market liquidity. In contrast, with aggressive orders, the trader specifies a price at which the trade can be executed right away. Aggressive orders consume market liquidity.
When the order price is closer to the market price, it indicates an aggressive order. Unlike passive orders, aggressive orders are executed because the price is set at the bid/ask price or above/below it, provided there is sufficient volume available in the market.
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