Limit Order Decay

Limit Order Decay refers to the phenomenon where a limit order becomes less likely to be filled as time passes or as market conditions shift away from the specified price. As the market price moves, the original intent of the order may become obsolete, or the order may become stale compared to current liquidity.

Traders often use decay models to determine how long an order should remain active before it is canceled or updated. This is critical for maintaining an effective strategy that does not get trapped in disadvantageous positions.

In volatile markets, decay happens rapidly, necessitating automated management systems. Proper handling of order decay prevents the accumulation of unwanted inventory and optimizes capital efficiency.