Exchange Price Bandwidth Limits and Protected Market Orders
Summary
The article explains exchange trading bandwidth limits: bounds around a mark price that prevent trades from executing at prices judged too far away. These controls aim to reduce isolated spikes caused by thin order books, oversized orders, stop runs or liquidation cascades. Since limits move with the mark price, the author says they can restrict abrupt deviations while still allowing trading to follow a genuine market-wide move.
The examples cover perpetual futures and options, showing how minimum sell and maximum buy prices appear on an order form. A market order that reaches a boundary can fill available quantity up to that limit, with the remainder resting as a limit order there. The bounds are also described as available through public market data endpoints. This is an explanation of one exchange’s mechanism, not a guarantee against losses or a universal exchange standard; the settings and behavior may differ by instrument and venue.
Key ideas
- Bandwidth limits restrict executions beyond a moving range tied to an instrument’s mark price.
- The controls are intended to reduce isolated price spikes and erroneous executions in thin markets.
- Perpetual futures and options can each display minimum sell and maximum buy prices.
- A market order that reaches a limit may leave its unfilled remainder resting as a limit order at the boundary.
- The described protection is venue-specific and does not prevent all trading losses.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.