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MARKET ORDER WITH PROTECTION
A market order is the simplest type of order and is used when time has the greatest priority: the
order is to be executed now at whatever price is necessary for immediate execution.
A market order to buy is executed at the current market offer and then through subsequently higher
market offers until the order is completely filled.
A market order to sell is executed at the current market bid and then through subsequently lower
market bids until the order is completely filled.
On electronic trading platforms, a large-volume market order can quickly cascade through bids or
offers with the consequence that part of the order may be filled at an extreme price.
In response, exchanges have developed a protection feature intended to avoid market orders being filled at extreme prices.
On CME® Globex®, market orders are implemented using a “Market with
Protection” approach. Unlike a conventional market order where
customers are at risk of having their orders filled at extreme prices, Market
with Protection orders are filled within a predefined range of prices, called the protected
range. The protected range is typically the current best bid or offer, plus or minus
50 percent of the product’s No Bust Range (see below).
If the entire order cannot be filled within the protected range, then the unfilled quantity
remains on the book as a limit order at the limit of the protected range.
No-Bust Range: A range of prices used in determining if a potential error trade should be busted. The range is based on the true
market price for the contract immediately before the error trade occurred, as determined by considering all relevant information,
including the last trade price on the CME Globex platform, a better bid or offer price, a more recent price in a different
contract month, the price of the same or a related contract established in open outcry trading and the prices of related
contracts trading in other markets (e.g., cash FX and SGX Eurodollars). A trade may not be busted if it falls within the
No Bust Range for that contract. No Bust Ranges vary by product.
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Details of the market order with protection provided on Globex can be found in this
31-page CME Globex Reference Guide. To view, just click on
the image above. (Adobe Reader required.) |
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Keywords: market order with protection, market with protection
Abstract: A market order with protection, available on some electronic trading platforms, is designed to prevent extreme fill prices.
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