Passive Order

A Passive Order is a type of order used in financial markets. Passive orders are orders where buyers or sellers prefer to wait at current price levels. In other words, the party placing the passive order sets the order price and waits for the other party to execute at that price.

Passive orders are often used by participants who want to provide liquidity or take on the role of a market maker. This order type relies on the likelihood of the order being filled by the counterparty in the market.

Passive orders can be used in two different ways:

1. Passive Buy Order: An investor places a buy order by setting a price below the current market price. In this case, the buyer takes on the passive role and waits for sellers to sell at a lower price.

2. Passive Sell Order: An investor places a sell order by setting a price above the current market price. In this case, the seller takes on the passive role and waits for buyers to buy at a higher price.

Passive orders may be suitable for investors who want to transact at the market price. However, there is no guarantee of execution for passive orders. The party placing the passive order waits for other market participants to execute their orders, and if no execution occurs, the order remains passive.

Passive orders carry less risk compared to active orders. In active orders, investors prefer to transact at the market price immediately, while in passive orders, investors prefer to wait at current price levels.

In summary, a Passive Order is a type of order where the buyer or seller prefers to wait at current price levels. These orders are used by participants who want to provide liquidity or take on the role of a market maker. Passive orders wait for other participants to execute their orders, and if no execution occurs, the order remains passive.