Passive Order
A passive order is a type of order placed on a trading platform that does not immediately execute and instead waits to be filled at a later time. This type of order is typically used by traders who are looking to enter or exit a position at a specific price point, rather than immediately trading at the current market price.
How Passive Orders Work
When a trader places a passive order, they specify the price at which they are willing to buy or sell a particular asset. The order then sits on the order book until the market reaches the specified price, at which point it will be executed.
Passive orders are often used by traders who are looking to enter a position at a better price than is currently available in the market. By setting a passive order at a lower price (for a buy order) or a higher price (for a sell order), traders can wait for the market to come to them rather than chasing the price.
Benefits of Passive Orders
One of the key benefits of using passive orders is that traders can potentially get a better price for their trade than they would by placing a market order. By setting a specific price at which they are willing to trade, traders can avoid paying the spread and minimize slippage.
Additionally, passive orders allow traders to set a target price for their trade and walk away from the market, knowing that their order will be executed if the market reaches their specified price.
Limitations of Passive Orders
While passive orders can be a useful tool for traders, there are some limitations to be aware of. One potential drawback is that the market may not reach the specified price, leaving the order unfilled. In this case, the trader may need to adjust their order or place a new one to get their trade executed.
Another limitation is that passive orders can tie up capital for an extended period of time, as the order may sit on the order book for an indefinite period before being filled. This can limit the trader‘s ability to deploy their capital in other trades.
