To ensure that your trading prices align with the market and maintain a fair and orderly trading environment, BitTap sets an upper limit for market buy orders and a lower limit for market sell orders. This rule effectively prevents market orders from being impacted by extreme market fluctuations or abnormal trading activities.
During periods of high market volatility, the bid-ask spread in the order book may widen significantly, causing the best bid and ask prices to deviate considerably from the contract’s mark price. In such cases, market and limit orders may fail or only partially execute if they exceed the upper/lower limit ratio, which is particularly common in illiquid or extreme market conditions.
For example, if a limit order’s price difference from the market price exceeds the upper/lower limit ratio, the limit order will become invalid. Similarly, if the difference between the best ask price and the mark price exceeds the market order’s upper/lower limit ratio, the market buy order will fail. Likewise, if the best bid price deviates too much from the market price, the market sell order will not be executed.
It is important to note that in cases of extreme price fluctuations or significant deviations from the index price, BitTap will implement additional protective measures, including adjusting the threshold for the upper/lower order price limits.
Impact of Market Orders in Illiquid and Volatile Market Conditions
During periods of extreme market volatility, contract prices may experience sharp fluctuations in a short time, leading to market orders executing at unexpected prices. If a market order is placed under such conditions, it may fail or be partially executed due to the upper/lower limit ratio for market orders.
The purpose of setting the market order upper/lower limit ratio is to balance trade execution certainty while minimizing price risk. However, in some cases, this may lead to order execution delays or failures. Additionally, different contracts may have varying upper/lower limit ratios, affecting the speed and certainty of trade execution.
Please note that orders exceeding the limit order’s upper/lower limit ratio may become invalid or only be partially executed. For instance, a limit buy order with a price above the upper limit or a limit sell order with a price below the lower limit may not be fully executed.