What is Price Protection Mechanism

The Price Protection Mechanism is a feature specifically designed to safeguard users against inadvertent price errors and to prevent abnormal trading activities that might negatively impact users. The primary goal of this mechanism is to protect users from sudden and potentially harmful price fluctuations.

An important aspect to note about the Price Protection Mechanism is that in extreme cases, it might temporarily restrict users from placing orders. This temporary restriction, though rare, is a necessary measure to ensure market stability and protect users from extreme volatility. 

Price protection is comprised of two parameters:

1. Price Protection Ratio

2. Price Cap/Floor Ratio

Let’s take an example to better understand this. Assume the current market price of BTC is 40,000 USDT. The Price Protection Ratio for BTC is 5%, and the Price Cap/Floor Ratio is 50%.

For Buy Orders:

1. The maximum price at which users can buy is capped at 42,000 USDT, calculated as 40,000 × (1 + 5%) = 42,000.

2. The minimum price for placing buy orders is set at 20,000 USDT, calculated as 40,000 × (1 - 50%) = 20,000.

For Sell Orders:

1. The minimum selling price is set at 38,000 USDT, calculated as 40,000 × (1 - 5%) = 38,000.

2. The maximum price for placing sell orders is capped at 60,000 USDT, calculated as 40,000 × (1 + 50%) = 60,000.

It's important to note that these limits also apply to various order types, such as stop limit orders, stop market orders, take profit limit orders, and take profit market orders. Orders outside these specified limits may be deemed invalid.

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