Understand the logic of limit order execution to avoid unexpected immediate execution

Traders often encounter a confusion when using limit orders: even though they set a limit price, the order executes instantly after placement, sometimes without reaching the expected price. This is not a system malfunction but a normal operation of the limit order mechanism. Understanding this logic can help you better control your buy and sell prices in trading and avoid unnecessary market slippage.

Why Do Limit Orders Execute Immediately?

The core feature of a limit order is that it allows traders to decide the transaction price themselves, but the trade-off is that it does not guarantee the order will be filled. However, in certain situations, a limit order may go against the trader’s original intention and execute immediately at a price acceptable to the counterparty.

This mainly depends on three factors:

1. Buy order price exceeds the best ask price in the market
If your buy price is higher than the current best ask price (the lowest price someone is willing to sell at), the system will determine that an immediate fill is possible. Simply put, if the lowest ask in the market is $10,183, and you are willing to buy at $10,207, the exchange will prioritize executing your order at $10,183.

2. Sell order price is below the best bid price in the market
Similarly, if your sell price is lower than the highest bid price (the highest price someone is willing to buy at), the system will trigger an immediate fill. For example, if the highest bid is $10,182.50, and you want to sell at $10,100, the exchange will execute your order immediately at $10,182.50.

3. Passive order (Post-Only) feature is not enabled
If you do not select the Post-Only Order option when placing the order, the system defaults to allowing active matching, making immediate execution more likely.

How Buy Limit Orders Are Executed

Take a buy limit order at $10,207 as an example to understand the system’s logic:

When you place a buy order at $10,207, the system checks the current market ask price. Suppose the best ask is $10,183. The system compares prices using the “high sell, low buy” logic.

This means: the price you are willing to pay ($10,207) is already higher than the lowest ask in the market ($10,183). At this point, the system will not make you wait but will execute the order immediately at the lowest ask price of $10,183, following a first-come, first-served basis.

The transaction will continue until your specified quantity is filled or until the order price drops to $10,207. Afterward, the system records the transaction details, documenting the entire process.

How Sell Limit Orders Are Executed

A similar logic applies to sell orders. For example, a sell limit order at $10,100:

When you place a sell order at $10,100, the system checks the current highest bid price. Suppose the highest bid is $10,182.50, and the system uses the same “high sell, low buy” standard.

In this case, your willing-to-sell price ($10,100) is lower than the highest bid ($10,182.50). The system will execute immediately on a first-come, first-served basis, selling at the higher bid price of $10,182.50.

The process continues until your specified quantity is filled or the price drops to your order price of $10,100.

Tips to Avoid Unexpected Immediate Fills

To prevent your limit orders from executing immediately by accident, the key strategies are:

• Enable the Passive Order (Post-Only) feature: Check the Post-Only Order option to ensure your limit order only acts as a maker order and does not match actively.
• Set reasonable limit prices: For buying, set prices below the current best ask; for selling, set prices above the current best bid.
• Monitor real-time quotes: Before placing an order, check the current ASK and BID prices to assess whether an immediate fill is likely.

By understanding how limit orders are executed, you can use this tool more precisely. The flexibility of limit orders lies in controllable prices; the key is knowing when the system considers an order eligible for immediate execution. This knowledge allows you to better manage your trading rhythm.