Aggressive Vs Passive Orders

In the context of order flow, aggressive orders are market orders that hit the bid or lift the offer to execute immediately, thereby removing liquidity. Passive orders are limit orders that sit on the book waiting to be filled, thereby providing liquidity.

The interaction between these two types of orders drives price discovery. When aggressive buying overwhelms passive selling, the price rises.

When passive selling absorbs aggressive buying, the price stagnates or reverses. Institutional traders use both types depending on their goals: aggressive orders for speed and passive orders for price improvement.

Understanding this distinction is essential for reading the order flow and predicting short-term price shifts. It is the fundamental mechanic of all electronic exchange environments.