Post-Only Orders: Minimizing Maker Fees Explained
Post-Only Orders: Minimizing Maker Fees Explained
Introduction
As a beginner in the world of crypto futures trading, understanding the nuances of order types and fee structures is paramount to consistent profitability. While market orders offer simplicity, they often come with drawbacks, particularly concerning slippage and taker fees. A powerful tool available to traders, especially on platforms like Binance Futures, Bybit, and OKX, is the “post-only” order. This article will delve into the specifics of post-only orders, explaining how they work, their benefits, drawbacks, and how to effectively utilize them to minimize maker fees and improve your trading strategy. We will focus specifically on its application within the futures market, as the fee structures and order types are particularly relevant there.
Understanding Market Maker vs. Market Taker
Before diving into post-only orders, it’s crucial to grasp the fundamental roles of market makers and market takers within an exchange's order book. Exchanges incentivize liquidity provision, and these roles directly impact the fees you pay.
- Market Takers: These traders execute orders *immediately* at the best available price. They “take” liquidity from the order book. Because they remove liquidity, they are charged a *taker fee*.
- Market Makers: These traders add liquidity to the order book by placing orders that are *not* immediately filled. They “make” liquidity for others to trade against. For providing liquidity, they are charged a *maker fee*, which is typically significantly lower than the taker fee.
The difference in fees can be substantial. A typical fee structure might look like this (fees vary by exchange and trading volume):
| Fee Type | Fee Rate | ||
|---|---|---|---|
| Taker Fee | 0.075% | Maker Fee | 0.025% |
As you can see, the taker fee is three times the maker fee in this example. Reducing your taker fees and maximizing your maker rebates can dramatically improve your profitability over time.
What is a Post-Only Order?
A post-only order is a specific type of limit order designed to *always* be placed as a maker order. When you submit a post-only order, the exchange guarantees that your order will not be executed as a taker order. If your order would be executed as a taker order (meaning it would immediately match with an existing order in the order book), the exchange will reject the order instead of filling it.
This is achieved by setting the price of your limit order sufficiently far enough away from the current market price that it won’t be immediately filled. The exact distance required depends on the liquidity depth of the order book.
How Does a Post-Only Order Work in Practice?
Let’s illustrate with an example. Suppose Bitcoin (BTC) is currently trading at $30,000.
- Scenario 1: Market Order – You place a market order to buy 1 BTC. Your order is filled immediately at the best available ask price, let’s say $30,000.05. You pay the taker fee on this trade.
- Scenario 2: Limit Order (Regular) – You place a limit order to buy 1 BTC at $30,000. If there are sell orders at or below $30,000, your order will be filled immediately as a taker order, and you’ll pay the taker fee.
- Scenario 3: Post-Only Order (Buy) – You place a post-only order to buy 1 BTC at $29,995. Because this price is below the current market price, your order will not be immediately filled. It will sit on the order book as a limit order, providing liquidity for sellers. When a seller comes along and offers to sell at $29,995 or lower, your order will be filled as a maker order, and you’ll pay the lower maker fee. If no one accepts your price, your order remains open until canceled or filled.
The key takeaway is that the exchange actively prevents your post-only order from being executed as a taker.
Benefits of Using Post-Only Orders
- Reduced Fees: The most significant benefit is the reduction in trading fees. By consistently acting as a market maker, you benefit from lower maker fees, which can add up significantly over time, especially for high-frequency traders.
- Improved Slippage Control: While not guaranteed, post-only orders can help mitigate slippage. Because you’re setting a limit price, you have more control over the price at which your order is filled. Market orders are susceptible to slippage, particularly during periods of high volatility.
- Strategic Order Placement: Post-only orders allow you to strategically place orders near support or resistance levels, potentially benefiting from price reversals.
- Algorithmic Trading Compatibility: Post-only orders are essential for algorithmic trading strategies where minimizing fees and controlling execution are critical.
Drawbacks of Using Post-Only Orders
- Order Rejection: The biggest drawback is the possibility of order rejection. If the market moves too quickly, your post-only order might be priced too far from the current market price, and the exchange will reject it. This can lead to missed trading opportunities.
- Delayed Execution: Because post-only orders are limit orders, they are not guaranteed to be filled. You may have to wait for the market to reach your specified price, and it might not happen at all.
- Requires Careful Price Setting: Setting the price for a post-only order requires careful consideration. Too close to the market price, and it might be executed as a taker. Too far away, and it might never be filled.
- Not Suitable for Urgent Entries/Exits: If you need to enter or exit a position *immediately*, a post-only order is not the appropriate choice. Market orders are better suited for such situations, despite the higher fees.
Implementing Post-Only Orders Effectively
Here are some tips for effectively utilizing post-only orders:
- Understand Order Book Depth: Before placing a post-only order, analyze the order book depth. Look for areas where there’s sufficient liquidity to support your order without immediate execution. Tools like volume profile and open interest analysis (as discussed in Top Tools for Successful Cryptocurrency Trading: Volume Profile and Open Interest Explained) can be invaluable.
- Adjust Price Incrementally: If your post-only order is repeatedly rejected, gradually adjust the price closer to the market price until it’s accepted.
- Consider Volatility: In highly volatile markets, increase the price distance of your post-only order to account for rapid price swings.
- Use Conditional Orders: Combine post-only orders with conditional orders (as explained in Conditional orders) to automate your trading strategy and manage risk. For example, you could set a post-only buy order with a stop-loss order to limit potential losses if the market moves against you.
- Backtest Your Strategy: Before deploying a post-only order strategy with real capital, backtest it thoroughly to assess its performance and optimize your parameters.
Post-Only Orders and Contract Rollover
It’s also important to consider how post-only orders interact with contract rollover in futures trading. As explained in Contract Rollover Explained: Maintaining Exposure While Avoiding Delivery in Crypto Futures, futures contracts have expiration dates. When a contract nears expiration, traders need to “roll over” their positions to the next contract.
Using post-only orders during contract rollover can be particularly beneficial. You can place post-only orders to buy the next contract while simultaneously selling the expiring contract, minimizing slippage and fees during this process. However, pay close attention to the price difference between the expiring and next contracts to ensure a favorable rollover.
Advanced Considerations
- Iceberg Orders: Combine post-only orders with iceberg orders (hidden orders) to conceal your order size and prevent front-running by other traders.
- TWAP (Time-Weighted Average Price) Orders: Utilize TWAP orders in conjunction with post-only orders to execute large orders over a specific period, minimizing market impact.
- VWAP (Volume-Weighted Average Price) Orders: Similar to TWAP, VWAP orders can be used with post-only orders to execute orders based on volume, providing a more nuanced approach to execution.
- Exchange-Specific Implementations: Be aware that the implementation of post-only orders can vary slightly between different exchanges. Familiarize yourself with the specific settings and options available on your chosen platform.
Conclusion
Post-only orders are a powerful tool for crypto futures traders looking to minimize fees, control slippage, and strategically place orders. While they require a deeper understanding of order book dynamics and careful price setting, the benefits can be substantial, especially for active traders and those employing algorithmic strategies. By mastering this order type and combining it with other advanced trading techniques, you can significantly improve your profitability and navigate the complex world of crypto futures trading with greater confidence. Remember to always practice risk management and thoroughly backtest any new strategy before deploying it with real capital.
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