Stop Orders: The Powerful Tool to Navigate Binance Futures
Binance, founded in 2017, has rapidly grown to become the world’s largest cryptocurrency exchange by trading volume. It offers its users a wide range of services, including spot trading, margin trading, and futures trading. Binance Futures, launched in 2019, has become an increasingly popular platform for traders looking to gain exposure to the volatile cryptocurrency market. One of the most powerful tools available on Binance Futures is the stop order, which can help traders navigate the market and manage risk.
Stop orders are a type of order that is placed to buy or sell an asset once it reaches a certain price, known as the stop price. Once the stop price is reached, the stop order is triggered and the trade is executed at the current market price. Stop orders can be used to limit losses or protect profits, making them an essential tool for risk management. Binance Futures offers three types of stop orders: stop-market, stop-limit, and trailing stop orders. Each type has its advantages and disadvantages, and traders must carefully consider their strategy before choosing which type to use.
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Binance Futures-An Overview
Binance Futures is the world’s top crypto derivatives market, providing traders with a straightforward opportunity to bet on the price movement of digital assets. Futures contracts are capital-efficient because traders may obtain a good return profile without putting a considerable amount of cash at risk.
Crypto traders on Binance Futures may use tools like stop orders to trade futures more effectively and limit possible losses. Stop orders assist traders in developing a defined exit strategy and avoiding the burden of making emotional judgments.
When it comes to utilizing stop orders on Binance Futures, there is no one-size-fits-all solution. Each technique has advantages and cons, based on market conditions and the user’s aims.
This article looks at the many types of stop orders available on Binance Futures and what each one has to offer futures traders.
What are Stop Orders?
Stop orders are predominantly used on Binance Futures to help minimize losses and lock in profits using stop-loss and take-profit orders, respectively. When establishing a stop order in Binance Futures, three major aspects must be considered: the stop price (also known as the trigger price), the execution price, and the kind of stop order.
A purchase or sell order is activated at the stop price. You may manage the execution price by selecting the stop order type and either the Last Price or Mark Price as the trigger type.
If a stop-market order is specified, the order will be executed at the best available price in the order book. If a stop-limit order is used, the order will be executed at the limit price or a better price.
Trigger Type: Mark Price versus Last Price
There are two sorts of stop/trigger prices: Last Price and Mark Price. On Binance Futures, the Last Price is the most recent transaction price of a contract, while the Mark Price is the projected fair value of a contract.
Utilizing the Last Price to trigger a stop order guarantees that the stop price is closer to the order’s execution price. Yet, it is not a foolproof method of avoiding liquidation because the liquidation price is always the Mark Price.
If you want to prevent liquidation, use the Mark Price as the trigger since it always corresponds with the liquidation price of a futures contract. Unfortunately, this implies that the price at which your stop order is executed may diverge from your trigger price even further.
For example, if you place a stop-limit order, your order may not be expected at all since the Mark Price is the average price and cannot be utilized to complete an order. This is especially true during moments of extreme volatility when the spread between the Last Price and the Mark Price might grow.
In conclusion, utilizing the Last Price to initiate a stop order can enable you to get closer to the execution price. Yet, it does not ensure the avoidance of liquidation. As a result, it is preferable to prevent liquidation by using the Mark Price as the stop order trigger.
Types of Stop Order: Market Order vs. Limit Order
The stop order type in Binance Futures sets the type of order that the system makes whenever the asset hits the stop price. There are two types of stop orders: stop-market (a market order) and stop-limit (a limit order).
With a stop-market order, you simply need to provide the stop price. When this pricing is enabled, the system will automatically execute the transaction at the best available price.
A stop-limit order requires you to provide both the stop and limit prices. The order will only be executed at the provided limit price or a better price. When the asset hits the stop price, the system will attempt to match your order inside the order book.
Nevertheless, the order will be honored only if the requested price or a better price — usually closer to the Last Price — is available. The order will expire if the limit price or a better price is not available in the order book. To avoid this, make the limit price lower than the trigger price.
There are four potential combinations of stop order kinds, as illustrated in the graphic below which is described in the Binance blog, each with its own set of pros and disadvantages. It’s crucial to note that there is no perfect mix, and your final decision will be determined by your particular tastes and trading style.
Fascinating facts regarding Stop Orders
- Stop orders are not a foolproof method against liquidation
Even if you place a stop-loss order using the Mark Price as the stop price, it’s vital to remember that a stop order is not a surefire method of preventing liquidation. The liquidation price is subject to fluctuation, and the stop-loss order may or may not protect holdings against liquidation.
- Stop orders are distinct from limit orders
Limit and stop orders serve distinct functions and should not be confused. The former is an order to buy or sell an asset at a certain or better price, while the latter is activated when a given price level is achieved and is intended to capitalize on an upward or negative trend.
- Stop orders may be used to start and end positions
A stop order isn’t just for closing positions; it may also be used to start new ones. As a result, a stop order may be used to enter a new position on the market as well as exit an existing position.
- Orders might expire for a variety of reasons
When a contract’s Last Price and Mark Price surpass a preset level, the Price Protection mechanism prevents the stop order from being activated, allowing the order to expire. At the same time, a stop-limit order may expire if the stated limit price is not accessible in the order book.
- You can place numerous stop orders on the same contract
Binance Futures allows you to put several stop orders on the same contract at different price levels. For example, you may set one with the Last Price as the trigger to avoid liquidation and another with the Mark Price as the trigger to avoid excessive losses.
- Your order may not be completed at the stop price you specified
A stop-market order will be completed at the next available market price, which may or may not be the stop price indicated.
Closing Thoughts
Stop Orders are a powerful tool that can help traders navigate the volatile cryptocurrency market on Binance Futures. With three types of stop orders available, traders can choose the one that best suits their strategy and risk management needs. By using stop orders, traders can limit losses and protect profits, which is essential in a market as unpredictable as cryptocurrency. Binance Futures’ user-friendly interface and range of tools, including stop orders, make it a popular choice for both novice and experienced traders.
Moreover, the Binance clone script is an increasingly popular solution for businesses and entrepreneurs looking to enter the cryptocurrency market. These scripts allow businesses to launch their own exchanges quickly and efficiently, without having to build the platform from scratch. By incorporating features such as margin trading, futures trading, and stop orders, businesses can offer their clients a full range of trading options, and increase their chances of success in the highly competitive cryptocurrency market.
Finally, as the cryptocurrency market continues to grow and evolve, it is essential for traders and businesses to stay informed and adapt their strategies accordingly. Stop orders are just one tool that can help traders manage risk, and it is important for traders to keep up-to-date with the latest developments in the market. Similarly, businesses that want to succeed in the cryptocurrency industry must be willing to innovate and adapt to the changing market conditions. By incorporating the latest technologies and tools, such as Binance clone script, businesses can gain a competitive advantage and succeed in the dynamic world of cryptocurrency trading.
