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STOP ORDER WITH PROTECTION
Executing a stop order on an
electronic trading platform can be done so quickly that a large-volume stop order can quickly cascade through
ever higher or lower execution prices with the result that some part of the order is filled at an extreme price.
In response, exchanges have developed a protection feature intended to avoid cascading stop orders being filled at extreme prices.
In effect, a stop order
with protection works a lot like a stop-limit order
except that the exchange sets the limit price based on market activity.
On CME® Globex®, Stop Orders with Protection are
filled within a predefined range of prices called the protected range. A Stop Order with Protection is triggered when the stop price
is traded on the market. The order then enters the order book as a limit order with the protection price limit equal to the stop price
plus or minus the predefined protected range. The protected range is typically the stop plus or minus 50 percent of the
No Bust Range for that product (see below). The order is executed at all price levels between the stop and protection limit price.
If the order is not completely filled, the remaining quantity is placed in the order book at the protection price limit.
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 stop 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: stop order with protection, stop with protection
Abstract: A stop order with protection, available on some electronic trading platforms, is designed to prevent extreme fill prices.
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