An Cboe Digital Market Order With Protection is an order to buy or sell a stated amount of an asset at the prevailing best price. Users do not need to set a Limit Price for their order. Instead the system will attempt to fill the full order at the best available prices in the market. If the order cannot be fully filled, for example as a result of triggering an order protection, the system will match with eligible orders, if any, in partial fills and cancel any residual, unfilled portion.As such a Market Order may not fully fill.
The fees that will be incurred when using Market Orders are calculated upon order entry (based on the prevailing best price) and included in the notional amount that you specify in your order. This ensures that you have a sufficient balance, net of fees, for the order to execute. For example, if you send an order to buy $10,000 of an asset and the fee is $20, you will not be charged $10,020. Instead the fees will be subtracted from the $10,000 and you will purchase $9,980 worth of [the asset].
How to specify quantity for Market Orders
First, we will define the following concepts:
For a Buy Market Order, users will need to specify the quantity they want to buy in terms of the Quote Currency. For example, if you want to buy $10,000 worth of BTC at market price, you will need to enter BUY $10,000 BTC/USD.
For a Sell Market Order, users will need to specify the quantity they want to sell in terms of the Base Currency. For example, if you want to sell 0.5 BTC at market price, you would need to enter SELL 0.5 BTC/USD.
Market Order Protections
Using Market Orders carries some risk. If liquidity is thin, spreads are wide, or quotes are volatile, for example, a Market Order may execute at price(s) inferior to what the user optimally intended. Cboe Digital has implemented a set of protections for Market Orders in order to mitigate some of the inherent risks of using this order type. When selecting Market Order with Protection, two categories of protections will apply:
Market Width Protection
This protection will cause Market Orders to be rejected when the market width (bid-offer spread) is wider than a predefined percentage. It has the objective of preventing Market Orders from trading at unexpected prices as a result of temporary market dislocations during periods of volatility. For example, when market makers briefly widen out their quotes to adjust to fast-moving markets.
Market Depth Protection
This protection will cancel any remaining quantity of a partially filled Market Order – when the order will require multiple fills to fully execute – if the difference between the first trade price and the price at which the next order would trade (the next trade price) would exceed a predefined percentage. It has the objective of preventing Market Orders from sweeping the order book and trading at unexpected prices as a result of temporarily thin book depth during periods of volatility. For example, when market makers are briefly out of the market as they adjust to fast moving markets.
This check takes place when a Market Order would trade against multiple price levels as it exhausts the liquidity on each level. After filling the first price level available in the market, this check will take place every time the order starts to fill at a new price level.
Let’s assume the order book for BTC/USD looks like this: