How does a smart limit order with market following work

Trailing Limit Order is an innovative trading tool that automatically adjusts to market movements. Unlike traditional limit orders, which remain fixed at a static price, a trailing limit order dynamically adapts to changes in supply and demand, allowing traders to obtain more favorable execution conditions.

Why Use a Trailing Limit Order: Key Advantages

Traders choose trailing limit orders in three main situations.

Faster Entry into a Position. When you need to quickly open a large position, this order acts like a market maker, minimizing wait time for a favorable price. Instead of waiting for an extended period, the order is filled within seconds.

Protection Against Slippage. The dynamic price adjustment automatically brings the limit order closer to the desired level as the market develops. The risk of the order remaining unfilled due to sudden price jumps is significantly reduced.

Arbitrage Opportunities. By continuously monitoring market movements, a trailing limit order opens additional chances to profit from price differences between trading pairs or platforms.

How It Works: How the Platform Automatically Adjusts Prices

The principle of a trailing limit order is based on two parameters: the initial price and the maximum tracking distance.

Choosing the Starting Point. The trader can set the limit order directly at the current best bid (Bid1) or ask (Ask1), or specify a fixed distance from that level—either a numerical value or a percentage.

Automatic Following. The system constantly monitors changes in Ask1/Bid1 prices. If the market moves favorably, the limit order price also shifts upward (for buying) or downward (for selling), maintaining the set distance.

Tracking Boundary. The platform sets a maximum allowable distance (in absolute value or percentage), beyond which the limit order “freezes” at the current price and no longer follows the market. This prevents the order from deviating to unfavorable levels.

Trigger Price (Optional). If a trigger price is specified, the entire follow mechanism activates only after the last trade price reaches that level.

Two Use Cases: Real Trading Examples

Scenario One: Direct Follow Without Strict Limits

Suppose you want to buy 20,000 ABC tokens. At the time of order placement, the Bid1 price is 0.00123 USDC. You set a maximum tracking distance of 0.00005 USDC and a upper price limit of 0.00128 USDC.

Here’s what happens next: the market starts rising, and Bid1 reaches 0.00127 USDC. Your limit order automatically moves to that price—0.00127 USDC. The distance from the initial level is 0.00004 USDC, which is less than the maximum 0.00005 USDC, so the process continues.

If the market continues upward and Bid1 reaches 0.00131 USDC, the limit order would try to move there, but the distance would be 0.00008 USDC—exceeding the set maximum of 0.00005 USDC. Therefore, the order “stops” at the price of 0.00128 USDC (the upper boundary) and no longer follows the market, waiting to be filled at that level.

Scenario Two: Follow with a Fixed Percentage Offset

An alternative approach is to set the limit order at a certain percentage below the current market price. For example, you place a buy order for 1000 ABC tokens with a 2.5% offset below the current price. If the current price is 0.00120 USDC, the order is placed at 0.00117 USDC (0.00120 × (100% − 2.5%)).

As the market price changes, the offset remains constant. If the price drops to 0.00119 USDC, the order stays at 0.00117 USDC, since it still respects the offset. But if the price rises to 0.00125 USDC, the limit order moves to 0.00122 USDC (0.00125 × 97.5%), maintaining the required offset.

Important Limitations and Technical Parameters

Quantitative Limits. Each user can have only one active trailing limit order per symbol and direction (buy or sell). You can open up to 10 trailing orders across different trading pairs, with a total maximum of 20 active trailing orders.

Range of Distances. The minimum offset from the current price is 0.01%, and the maximum is 10%, with precision up to two decimal places.

Execution Mode. By default, all trailing limit orders operate in Post Only mode, ensuring they are placed as maker orders (adding liquidity). This means orders cannot be immediately filled as taker orders.

Protection Against Failures. During high volatility, if your order is rejected five times in a row due to Post Only restrictions, the trailing mechanism is automatically canceled.

A trailing limit order is a powerful tool for those who want to combine the precision of limit orders with market adaptability, reducing the risk of non-execution and slippage.