Limit Order Protection

Limit order protection refers to the mechanisms and rules that ensure limit orders are treated fairly and executed according to price-time priority. Exchanges implement these rules to prevent predatory practices and ensure a level playing field for all participants.

For example, some exchanges provide price improvement for limit orders if a trade can be executed at a better price than the one specified. Protecting limit orders encourages more liquidity provision, as market makers feel more confident in placing orders on the book.

Without such protections, participants might be less inclined to provide liquidity, leading to thinner markets and higher volatility. These rules are foundational to the integrity of centralized order book systems.