What is ZMO's Price Protection Mechanism and How Does It Affect Trading?

ZMO’s Price Protection Mechanism is a feature specifically designed to safeguard users against inadvertent order placement errors and to prevent abnormal trading activity that might impact users. 

An important aspect to note about the Price Protection Mechanism is that in extreme cases, it might temporarily restrict users from placing orders. This temporary restriction, though rare, is a necessary measure to ensure market stability and protect users from extreme price movements and volatility. 

The Price Protection Mechanism is a ratio that is applied to both buy and sell orders:

Price Protection Ratio

Let’s use an example to better understand this concept. Assume that the current market price of BTC is 80,000 USDT. The Price Protection Ratio for BTC is 5% - here’s what this means.

For Buy Orders:

With the Price Protection Ratio, the maximum price at which users can buy BTC is capped at 84,000 USDT, calculated as 80,000 × (1 + 5%) = 84,000

For Sell Orders:

The minimum selling price for BTC is set at 76,000 USDT, calculated as 80,000 × (1 - 5%) = 76,000

This means that you can’t buy or sell Bitcoin at prices that deviate too much from the market price, which can happen if you incorrectly input your desired price.

It's important to note that whilst these limits apply to orders that will transact in the market (i.e. market orders), they can also apply to other types, such as stop limit orders, stop market orders, take profit limit orders, and take profit market orders.

Orders outside the limits specified by the Price Protection Mechanism may be deemed invalid.

Limit orders that will not transact instantaneously are not subject to the Price Protection Mechanism. Users are able to freely place limit orders in the order book at whichever price they wish.