What is a follow-up limit order and how to use it

Trailing Limit Order is a trading tool that automatically tracks market price movements and adjusts its own price according to fluctuations in Bid and Ask. Unlike regular limit orders, which remain fixed, this type of order dynamically follows the market until it is filled, canceled, or reaches a preset maximum distance from the current quote.

How Trailing Limit Orders Work

The operation of such an order is based on two key parameters: the initial placement price and the tracking distance. Traders can set a trailing limit order at the current Ask1 or Bid1 level, or specify a fixed distance from these levels—either as an absolute value or as a percentage of the market price.

The platform continuously monitors the market and adjusts the order price in real time. The maximum trailing distance can be set as a numerical value or a percentage. When this distance is reached, the order “freezes” at the current price and stops following further market movements.

An additional option is the trigger price. If set, the strategy automatically activates when the last trade closing price reaches the specified level, allowing for more precise and planned entry into positions.

Use Cases for Trailing Limit Orders

Scenario 1: Unconditional Follow of Ask1/Bid1 Price

In this case, the trader does not impose strict limits on the maximum trailing distance. The order continues to adjust its price with every change in the Bid1 or Ask1 level until it is executed or canceled.

For example, a market participant places a limit buy order for 20,000 ABC tokens at the current Bid1 price of 0.00123 USDC. After placement, the market price rises, and Bid1 updates to 0.00124 USDC. According to trailing rules, the limit order price also rises to 0.00124 USDC. However, if a maximum distance of 0.00005 USDC and a maximum order price of 0.00128 USDC are set, then as the price continues to rise to 0.00131 USDC, the order “freezes” at 0.00128 USDC and will not go higher.

Scenario 2: Tracking with Fixed Distance

An alternative approach involves setting a limit order at a fixed distance from the Ask1 or Bid1 level. This distance can be expressed either as a specific number or as a percentage (coefficient). This configuration is especially useful when the market price moves favorably—the order automatically adjusts to maintain the set distance.

Suppose an investor places a limit buy order for 1000 ABC tokens with a tracking distance of 2.5% from the current market price. At the time of placement, the market price is 0.00120 USDC. The initial order price is calculated as: 0.00120 × (100% − 2.5%) = 0.00117 USDC.

As the market price changes, the following occurs:

When the price drops, the order remains unchanged, as the diverging gap only improves execution conditions. When the price rises and the gap widens, the order automatically moves up to maintain the 2.5% distance.

Main Advantages

Using a trailing limit order offers several significant benefits:

• Faster market entry since orders are executed as maker (Post Only) limit orders, minimizing waiting time for more favorable conditions.
• Reduced slippage risk, as the price automatically follows Bid/Ask movements, allowing traders to approach desired levels more closely without constant manual adjustments.
• Opportunities for arbitrage strategies, as careful monitoring of market movements enables traders to identify price discrepancies between trading pairs or different markets and profit from these differences more accurately and with less time expenditure.

Technical Limitations and Operational Rules

Certain restrictions govern the use of trailing limit orders to manage risks and ensure stable trading operations:

• Each user can place no more than one trailing limit order per trading pair on each side (buy or sell). The maximum number of different symbols with open orders of this type is limited to 10 pairs, and the total number of open trailing limit orders per account (UID) must not exceed 20.
• The tracking distance is regulated as follows: the minimum distance is 0.01% of the market price, and the maximum is 10%, with calculations precise to two decimal places.
• By default, all trailing limit orders function as Post Only orders, guaranteeing their execution as maker orders. This means the order cannot be immediately filled as a taker. During significant market fluctuations, the order may be rejected multiple times due to Post Only restrictions. If five consecutive rejections occur, the strategy is automatically canceled to prevent an infinite placement cycle.

Understanding trailing limit orders and their parameters allows traders to manage positions more effectively, minimize costs, and respond to market changes with greater flexibility and automation.