Bounded Market Order: Price Protection for Market Orders
Cove Markets has created a new order type / algorithm for users who want:
- High certainty of execution
- Limited risk of bad execution price
Limitations of Market and Limit Orders
Market orders are used for immediate execution, though if liquidity is limited, you might get executed at a poor price. We have seen many examples of traders at various exchanges getting executed several percent away from the prevailing market price by improper usage of market orders. Here are just a few examples: Coinbase Pro, Kraken, BItstamp, Bittrex, and Gemini.
Limit orders are good for making sure you get an execution price you are happy with. However, the crypto market can move fast and choosing an appropriate limit order price can be challenging as markets update in real-time. You even risk a typo.
Bounded Market Order
The Bounded Market order type, developed by Cove Markets, will send your order as a Limit order at a price equal to True Price +/- Bounded Market Depth percentage (addition for a buy order, subtraction for a sell order). Bounded Market Depth is set to 1% by default and is configurable in settings. The bounded limit price will be visible in the order ticket.
Example: The market in BTC-USD is 9,999 at 10,001 and True Price is 10,000. Withe a 1% bounded depth, a buy order will be sent with a limit price of 10,100, while a sell order will be sent with a limit price of 9.900. The exchanges will deliver you the best available price from the order book that is at or inside of the limit price. So you get the same execution as you would with a market order, but without the risk of trading too far away.