In this post, I will help you understand what a Binance Limit Order is vs. a Market Order.
Let’s get straight to it.
Binance Limit Vs. Market Order in a Nutshell: What Are They?
Market Order Definition
A market order will execute a trade at whatever the prevailing market price is.
For example, if the price of bitcoin is currently $30,000 and I place a market order to buy BTC then I will buy it at $30,000.
Binance Limit Order Definition
A limit order is a special type of order that will execute only when the digital asset reaches or exceeds a certain threshold (the limit) that you choose.
Limit Buy Order Example
For example, if the price of Bitcoin is currently $30,000 and I set a limit order to buy at $29,800 my order will stay open until bitcoin drops to $28,900.
When it does, my order will be fulfilled.
If I had set the buy limit order at a higher price, say at $32,000, my order would be fulfilled immediately.
Sell Limit Order Example
Say I am willing to sell only if the price of Bitcoin is $30,200. In this case, I would place a limit order with a limit of $30,200 and the order would execute only if the price of bitcoin rose to $30,200 and above.
What Is a Stop Loss Order?
A sell limit order is also known as a stop-loss order because you are setting the minimum price beyond which you don’t want to hold on to the asset any longer. Hence you are stopping any further losses.
Most crypto exchanges have stop-loss orders. The Binance exchange does not use that term though. It just calls them limit orders.
But why do exchanges such as Binance work like this? To understand that you need to get to grips with what an order book is.
What’s an Order Book?
In a marketplace, people are willing to pay different prices for the same asset.
Say you think that Bitcoin looks kinda of expensive these days.
You might say, “Nah, I ain’t buying now but I will buy if BTC drops to $10,000”.
Mentally, what you are doing, is placing a limit order. You are saying “I will buy Bitcoin when it reaches x”. Whatever x may be.
On the other hand, your friend Carlita is very happy to buy Bitcoin at the current price. She thinks it can only go up.
Then consider other people who are selling Bitcoin.
Your friend Mateo is willing to sell at $30,000 but your cousin Josh will only sell at $40,000
And this is how markets work. People have different opinions of what is the right price point to buy and sell.
On an exchange, you can automate and voice this opinion by setting a limit order.
The collection of limit orders across different price points is called an order book.
And, that is how markets are made.
For example, here is Binance’s order book.
On the order book above there are some people willing to buy at $26,500 (bid) and some who are willing to sell at $26,100 (ask). Others who are willing to buy at $25,200 and more who would sell at $29,000.
Let’s take a look at closer look at the benefits of using a limit order vs. a market order
Pros of Binance Limit Order Vs. Market Order
1. Lower Trading Fees
A limit order is cheaper.
People who place limit orders are called market makers. They create liquidity on the exchange because you need to deposit money and keep it waiting there until the order executes.
Liquidity is exactly what any exchange needs. High liquidity is one of the key factors that traders look for in an exchange.
In contrast, traders who place market orders are called takers because they just accept whatever the prevailing price in the market is.
Important note: On Binance maker and taker fees are the same for transactions below $1,000,000. There are some large players called market makers who get discounts on maker fees for larger trading volumes. See the fees section for more
2. You Can Automate Your Trading
More experienced traders use limit orders to enter and exit trades while they sleep.
For example, you might buy at x. Now say that the price increases by 20%. You believe that if it reaches +20% it will drop again before it rises. So you want to lock in your profits.
In this scenario, you could set a buy limit order to buy at x+x*1% and a sell order to sell at x + x*20%. This way you secure 20% if the coin’s price increases by that much.
3. Limit Orders Protect You Against Wild Swings
With a market order, you are blindly accepting whatever the prevailing price is. This could mean that you end up paying more than you expected if the price moves fast between when you press the buy button and when the trade executes. This is known as slippage.
4. You Can Cut Your Losses
Any experienced trader will tell you that it’s your emotions that cause you to lose money. With a limit order, you can cut your losses early if a trade is moving in the opposite direction of what you were expecting. Pro traders accept balancing many short losses with fewer large wins.
Cons of Limit Orders
1. A Limit Order Doesn’t Always Execute
A limit order might never execute.
For example, say you want to exit the market because you think markets will drop. But somehow you’ve got it into your head you don’t want to sell for lower than you bought.
So you set a limit order that is higher than the current market price.
You need to be aware that just because you set the order it doesn’t mean it will execute.
Things don’t always pan out how you want them to.
2. It Requires Patience.
If you are in a hurry to just buy a cryptocurrency and you have a long-term view you might as well just buy it using a market order. However, to avoid price slippage it would be better you set a limit order.
3. You Might Get a Partial Fill
If your limit price is hit, your order will start to execute but if the price moves quickly beyond your limit you may not be able to buy /sell all the quantity you intended at the desired price.
How to Set a Limit Order on Binance
Log into the Binance mobile app and do the following:
- Choose your trading pair. In this example, I have used BTC/USDT i.e. I want to buy Bitcoin with a stablecoin called US Tether where 1 USDT=1 U.S. dollar
- Next, select Limit from the drop-down under the buy-sell button. The default will be market.
- Set the limit amount. In this example, I have set it at $25,000 meaning I want to buy bitcoin only if it $25,000 or less.
- Enter the amount of BTC you wish to buy at the price limit. In my case, I have put 0.0229 BTC by filling in the last cell with the amount of USDT (574.75) I wish to convert to BTC.
- Click on “Buy BTC”
- At the bottom under the buy button, your order will appear under open orders. It will stay there until it is fulfilled. You can always cancel before the price reaches the limit in case you change your mind.
How to Place a Market Order on Binance
Placing a market order on Binance is simpler
- Open the app and find your trading pair. I am sticking with the BTC/USDT example.
- Make sure that “market” is selected from the drop-down menu below the buy button.
- In the field that says “USDT”, enter the amount of USDT you wish to convert to BTC
- Hit the buy button and the order will execute immediately to buy BTC for you at the prevailing price.
Other Order Types on Binance
Apart from market and limit orders, there are 3 other types of orders that you can place on Binance.
Stop-Limit order
A stop limit order is a type of limit order that kicks in after a coin reaches a specific price, the stop price.
Stop Limit Buy Example
Say that ETH is trading at $3,000.
I could set a buy-stop limit order with a stop price of $3,500 and a limit price of $3,600.
This means that if the price of ETH reaches $3,500 an order limit will kick in with a limit price of $3,600.
What I am instructing Binance to do in this case is:
“If the price of ETH exceeds 3,500 then buy it provided it is under $3,600”
Note that I could have set the limit price lower as well. Say I set it at $3,400. This would instruct Binance to activate the limit if ETH reaches $3,600 but my order won’t execute unless ETH drops back down to $3,400.
Stop Limit Sell Example
Continuing with the same example with the price of ETH being $3,000.
Say you set a sell stop order with a stop price of $2,500 and a limit price of $2,400.
Translation:
“If the price of ETH drops to $2,500 then start selling my ETH provided they can fetch of price of at least $2,400”
Alternatively, you could have set the limit price to be 2,600. This makes less sense but it would instruct Binance to activate the limit order once ETH hits 2,400. The limit order would only execute if ETH went back up to 2,600.
Trailing Stop
A limit order is cool because, like we saw before, you can take profit if the price goes higher.
But what if you could get an even better price?
What if the price continues to rise after you sell? If you set a limit order you might miss out on further upside.
What if you could set an instruction that said something like
“Continue to hold as long as the price keeps rising. “
The way to do this is with a trailing stop. Let’s look at an example
Sell Trailing Stop Example
Say ETH is 3,000. You set a trailing stop at 10%.
Say the price rises to $3,100 then to $3,200 then $3,300 all the way to $5,000 in one smooth up-swing.
Then imagine people start selling.
When the price drops to $4,500 (10% of $5,000) a limit order will trigger.
Say your limit price was $3,100 then Binance would sell as long as the price is above $3,100.
If you had set a trigger price limit of $4,600 your order would not execute unless the price rose back to $4,500
On Binance you can also set an activation price.
This is a specified price that triggers the trailing stop order.
If you don’t set one the trailing stop will activate as soon as you place the order.
One Cancels the Other (OCO)
This is a way to set both a limit order and a stop limit order at the same time.
They both have to buy or sell and one activates the other cancels.
If you cancel one then the other gets canceled.
OCO Example
Say you want to buy ETH if it drops to $2,500 or rises about $3,100.
In this case, you would set an OCO order with a limit order that has a limit price of $2,500 and a stop order with a stop of $3,100 and a limit of $3,200.
OCO is only used by professional traders who trade frequently.
You don’t come across it that often in cryptocurrency trading.
Fees by Order Type
Binance charges 10 basis points, i.e. 0.1% for both limit and market orders for regular users.
Large traders get further discounts for limit orders depending on their trading volume.
Also, all traders receive a 25% discount when they use Binance Coin (BNB) to trade.
BNB is Binance’s native currency from their Binance Smart Chain.
They want to encourage people to use it and this is why you get a discount for using that.
FAQs
Can I change or cancel my Limit or Market Order on Binance?
Yes, you can change or cancel your Limit or Market Orders as long as the order has not been executed. Once the order is executed, it cannot be modified or canceled.
Are there any fees associated with Binance Limit and Market Orders?
Binance charges fees for order execution. The fee structure can be found on the Binance website or within your Binance account.
Can I place multiple Limit or Market Orders simultaneously?
Yes, Binance allows traders to place multiple orders simultaneously, provided there is sufficient available balance in their account.
Should I use a limit order?
In general it is safer to use a limit order that is close to the current market price. This way you are protected against any extreme and sudden moves.
How long does a limit order last?
It depends on the exchange. It can be a certain number or days or in perpetuity until the order is filled or canceled by the trader. On Binance limit orders last 30 days.
Do limit orders have fees?
Yes limit order have maker fees. Maker fees are usually lower than take fees (market orders). On Binance regular users who trade less than $1,000,000 worth of crypto per month pay the same fees regardless of wether you set a limit orders or a market order.