Limit Orders and Stop Orders
A Limit Order uses a specific limit price to trigger market buys or sells. This allows you to enter or exit a position at your predetermined limit price or at a better rate. For Futures, the mark price can be used as the trigger price. In the case of Options and Powers, both the mark price and the underlier's index price can serve as triggers.
To illustrate, consider this example: If you're optimistic about ETHUSD and intend to purchase it at a rate lower than its current value, you can place a limit order to buy at a price 10% below the current mark price. When the mark price descends below your set limit price, a keeper will facilitate the execution of the buy order for ETH without your manual intervention.
Below is a concise breakdown of Limit Orders & Stop Orders, based on the trigger price's relation to the current price:
Condition | Buy/Long | Sell/Short |
Trigger Price < Current Price | Limit Buy | Stop Sell |
Trigger Price > Current Price | Stop Buy | Limit Sell |
For instance, if you already hold a long position in ETHUSD and want to set a stop-loss order that activates when ETHUSD prices drop by over 10%, you can initiate a Stop Order. This order will sell ETHUSD when its price is 10% below the current price.
Key Takeaways on Using Limit and Stop Orders:
- Limit orders and stop orders are processed as market orders when activated.
- The execution price is not guaranteed to be better than the trigger price. Price fluctuations might occur during the keeper's execution, but configuring a slippage tolerance can help counteract this.
- The trigger price doesn't account for the price impact from DPMM slippage. Thus, the final trade price is influenced by both the trigger price and DPMM slippage.
- For multiple orders with the same trigger prices, execution order is randomized, depending on which order the keeper identifies first.
Important Notes:
It's crucial to understand that the successful execution of orders is not guaranteed. Several factors can lead to execution failures:
- A keeper might initiate the trade, but it can fail due to issues like insufficient margins or surpassing the price limit. Such failed orders will be automatically canceled.
- Although a designated price might be reached, it might not stay there long enough to be executed by keepers.
- There might be instances when the keeper's service is temporarily unavailable.