AlexanderOn Binance and any other exchange, there are different types of orders you can place, and each of these orders has different implications for your trading. Basically, we have market-order, limit-order, and stop-limit orders, but in this article, I will be covering the stop-limit order. If you want to know more about other order types, you can check our article on that on this page.
Also in this post, I will explain what “maker” and “taker” mean in binance.
What is a stop-limit order and how does it work?
A stop-limit is an order to buy or sell an asset at the limit price (a future price) when the stop price (a price which is believed to be a signal for reversal) is reached. Once the stop price is reached, the stop-limit order becomes a limit order.
Stop-price: A stop price is the price level of an asset at which a trader believes that once the market price touches that level, a reversal has taken place. The limit price is usually a small amount below or above the stop-price, depending on the position you are taking.
Limit Price: A limit price of an asset at which a trader is willing to buy or sell an asset. For more clarity on this, you can refer to this page.
Here’s how stop-limit orders work.
When the stop limit order, which requires a stop-price and a limit price, is submitted to the Binance exchange (or any order exchange), it does not go to the order book immediately. It waits till the stop price is reached, and once this happens, the order turns into a limit order and stays in the order book till the limit price is reached.
Here is an illustration of a limit order.
If you bought an asset at $10 hoping to sell it at $20, at some point, the price of the asset was $15 and you needed to go out. You can use a limit order to make the trading more efficient in the following ways:
- Placing Stop Order: As the market is already in profit, you can place a stop order around $14.5. This order will tell the market to stop its bullish bias and initiate my limit order.
- Placing a Limit Order: This is the price at which you want to sell the asset. It should be below the stop price in this case. Having set your stop order at $14.5, your limit price should be something like $14. Once the market reaches this price, your asset will be sold automatically.
Forms of Stop-Limit Order
There are two basic scenarios in which a stop-limit order can be placed in trading. It can be in the form of a buy-stop-limit order or a sell-stop-limit order.
Buy-stop limit order.
A buy stop-limit order is an order to buy an asset at the limit price (a future market price) when the stop price is reached.
Example of a buy stop-limit order.
Let’s say you are waiting for the price of Ethereum (at a current price of $4000) to test a support zone (with a price level of $3500). If at some point you want to go out and get something and the price is $3600, you can place a buy stop-limit order to make the trading more efficient.
Here is how you can place a buy stop-limit order in this scenario.
Knowing that the price can rise at anytime, you can put your stop price at $3650 and your limit price at $3660 (just a $10 difference from the stop price).
If the price of Ethereum continues falling, you can come back later and buy it at your convenience. If, in your absence, the price of Ethereum starts rising, your stop-limit order will buy the Ethereum at $3660, and that is a better trade.
Sell-stop limit order.
A sell stop-limit order is an order to sell an asset at the limit price (a future market price) when the stop price is reached. It is just the opposite of a buy stop limit order.
Example of a sell-stop limit order.
Let’s say you are at the market around 10pm, waiting for the price of Ethereum you bought at $3500 to reach $4000 so that you can sell it. If by 10:30pm, the price of Ethereum is around $3800 and the market is still in an uptrend and you want to sleep. Already, you are at a profit and would not like to sell below this price.
To use a sell stop-limit order in this scenario, your stop price needs to be something like $3790 and your limit price needs to be $3780, just below the stop price.
What will happen when you place this order is that if the market later reverses and falls to $3790, your stop price will be hit. The market will automatically place a limit order for you (an order to sell your asset at $3,980).
It is worthy of note that in the above scenario, the stop price and limit price are almost the same (a difference of $10).
How to place a stop-limit order
Placing a stop-limit order is as simple as that of a limit order. The only difference is that in a stop-limit order, you need to set a stop price.
So, let me walk you through a step-by-step guide on how to place a stop-limit order on Binance.
Step 1: Select “classic trading”
Once you are logged into your Binance account, scroll up and you will see a button “trade”.
Select “classic trade” and you will be taken to the trading interface.
Step 2: Select the coin you wish to trade.
In the classic trading interface, you will see the pairs of cryptocurrencies in the top right corner.
From there, select the pair you want to trade.
Please note that you must have either the “base currency” or the “quote currency” in your spot wallet for you to trade a pair. Let’s say you want to buy Ethereum with USDT. You must have USDT for such a trade to be possible.
Step 3: Enter the stop and limit prices.
Once you have selected the pair you want to trade, you go to the order box.
There, you have the option to enter the limit price and stop limit price depending on the position you are taking. Once you are done with that, you then click the “buy or sell button.”
What do “Maker” and “Taker” mean on Binance?
Depending on the type of order you are placing, you can be a maker or taker of liquidity. Let me explain each differently.
Maker: When you place a limit or stop-limit order, you are increasing the trading volume (liquidity) of the particular currency.
Taker: When you place a market order, it is executed instantly and is there to take the liquidity created by the market. This is because market orders do not increase the trading volume, but rather take up some positions already placed in the order book.
Conclusion
On Binance, as on any other exchange, there are different order types, and each of them has different implications for trading. Having shown you how to place a stop-limit order on the Binance exchange, we urge you to study other order types so that you will know their differences from stop-limit orders and determine which one you want to place.
As always, the information on this page is based on our experience and the research we have done. You can refer to our disclaimer page to know how you should treat information on this website.
Alexander
