Post Only Order
Post Only Order
A “Post Only Order” is a specific order type available on many cryptocurrency futures exchanges. It’s a tool designed primarily for market makers and those aiming to contribute to liquidity, rather than aggressively taking it. Understanding Post Only orders is crucial for traders looking to minimize trading fees, especially on exchanges with a maker-taker fee structure. This article will provide a comprehensive overview of Post Only orders, covering their mechanics, benefits, drawbacks, and how they compare to other order types.
What is a Post Only Order?
At its core, a Post Only order instructs the exchange to *only* execute your order if it adds liquidity to the order book. This means the order will only be filled if it is placed away from the current best bid and ask prices, effectively creating a new, more distant order on the book. If your order would immediately match with an existing order (becoming a “taker”), it will *not* be executed. Instead, it will remain on the order book as a limit order until it is either filled by a counter-order, or you cancel it.
Think of it like this: you're offering to buy or sell at a price slightly *different* than what anyone is currently offering. You’re posting a new price level, hence the name "Post Only".
Maker-Taker Fee Structure
To understand the value of a Post Only order, you must first grasp the concept of a maker-taker fee structure. Most cryptocurrency exchanges operate on this model.
- **Makers:** Makers are traders who add liquidity to the order book by placing limit orders that are not immediately filled. They "make" the market by providing bids and asks at different price levels.
- **Takers:** Takers are traders who remove liquidity from the order book by placing market orders or limit orders that immediately match with existing orders. They "take" liquidity.
Exchanges incentivize market making by charging lower fees to makers and higher fees to takers. This encourages traders to contribute to a more liquid and efficient market. The exact fee percentages vary between exchanges (see Exchange Fee Structures).
A Post Only order *forces* you to be a maker, ensuring you receive the lower maker fee.
How a Post Only Order Works in Practice
Let's illustrate with an example using Bitcoin (BTC) futures on a hypothetical exchange:
- **Current Market Price:** BTC/USD 30,000
- **Best Bid:** 29,995
- **Best Ask:** 30,005
You want to buy 1 BTC.
- **Market Order (Taker):** If you place a market order, it will be executed immediately at the best ask price of 30,005. You’ll pay the taker fee.
- **Limit Order at 30,005 (Taker):** A limit order at 30,005 will also be executed immediately, as it matches the best ask. Again, you’ll pay the taker fee.
- **Limit Order at 30,010 (Maker - Post Only):** If you place a *Post Only* limit order at 30,010, the exchange will place it on the order book. This order won't be filled immediately because it's higher than the current best ask. You'll only pay the maker fee (which is lower). If someone later places a sell order at 30,010 or higher, your order will be filled. If it's not filled, you can cancel it.
- **Post Only Order Rejection:** If you *attempt* to set a Post Only order at 30,005 (matching the best ask), the exchange will *reject* the order. It won't be placed on the order book.
Benefits of Using Post Only Orders
- **Reduced Trading Fees:** The primary benefit is lower fees. By consistently acting as a maker, you avoid the higher taker fees, which can significantly impact profitability, especially for high-frequency traders.
- **Improved Order Execution (Sometimes):** While not guaranteed, placing orders away from the current price can sometimes lead to better execution prices, especially in volatile markets. You might get filled at a price closer to your desired entry point if the market moves in your favor. However, this is not the primary goal.
- **Contribute to Market Liquidity:** Post Only orders contribute to a healthier and more liquid market, which benefits all traders.
- **Avoid Front-Running:** While not foolproof, Post Only orders can make it slightly harder for malicious actors to engage in front-running – exploiting knowledge of your pending order to profit at your expense.
Drawbacks of Using Post Only Orders
- **Orders May Not Be Filled:** The biggest downside is that your order might not be filled, especially if there isn't sufficient opposing volume at your chosen price level. You need to be patient and willing to accept that your order may expire.
- **Slower Execution:** Because you're waiting for someone to take your order, execution is slower than with a market order. This can be a disadvantage in fast-moving markets.
- **Price Slippage:** If the market moves significantly against you before your order is filled, you may experience price slippage, meaning you get filled at a less favorable price than intended.
- **Requires Price Adjustment:** You may need to adjust your order price periodically to remain a maker, especially in trending markets. If the price moves significantly, your order may become a taker order, which will be rejected if the Post Only setting is active.
- **Not Suitable for All Strategies:** Post Only orders are not ideal for all trading strategies. They are best suited for strategies that prioritize low fees and don’t require immediate execution, such as arbitrage or long-term position building.
Post Only vs. Other Order Types
Here's a comparison of Post Only orders with other common order types:
| **Order Type** | **Execution** | **Fees** | **Best For** |
| Market Order | Immediate execution at best available price | Highest (Taker) | Quick entry/exit, not price sensitive |
| Limit Order | Execution at specified price or better | Maker or Taker, depending on execution | Precise entry/exit, controlling price |
| Stop-Market Order | Market order triggered when price reaches a specified level | Highest (Taker) | Protecting profits, limiting losses |
| Stop-Limit Order | Limit order triggered when price reaches a specified level | Maker or Taker, depending on execution | Precise entry/exit with risk management |
| Post Only Order | Only executed if adding liquidity (maker) | Lowest (Maker) | Fee-conscious traders, market making, long-term positioning |
Setting Up Post Only Orders on Exchanges
The precise method for setting up a Post Only order varies between exchanges, but the general process is as follows:
1. **Access Order Settings:** When placing an order, look for an “Order Type” or “Advanced Order Settings” section. 2. **Select "Post Only" or "Maker Only":** The option may be labeled "Post Only," "Maker Only," or a similar phrase. 3. **Specify Order Details:** Enter the quantity and price for your order. Remember that the price must be away from the current best bid/ask to qualify as a Post Only order. 4. **Confirm Order:** The exchange should indicate whether your order is valid as a Post Only order before you submit it.
If the exchange rejects your order, it’s likely because the price you’ve entered would result in an immediate fill (taker order). Adjust the price accordingly.
Advanced Considerations
- **Iceberg Orders:** Post Only orders can be combined with Iceberg Orders to conceal the full size of your order from the market, further reducing the potential for price impact and front-running.
- **Time in Force (TIF):** Consider using different Time in Force (TIF) options, such as Good Till Cancelled (GTC) or Immediate Or Cancel (IOC), in conjunction with Post Only orders. GTC allows the order to remain active until filled or canceled, while IOC attempts to fill the order immediately and cancels any unfilled portion.
- **Volatility and Spread:** In highly volatile markets or markets with wide bid-ask spreads, it may be more challenging to place effective Post Only orders. You may need to adjust your price more frequently to maintain maker status.
- **Hidden Orders:** Some exchanges offer hidden order functionality, which can be used in conjunction with Post Only orders to further obscure your intentions.
Using Post Only Orders with Trading Strategies
Post Only orders are particularly well-suited for several trading strategies:
- **Accumulation/Distribution:** Gradually building a position over time (accumulation) or reducing a position (distribution) using Post Only orders minimizes slippage and fees.
- **Arbitrage:** Exploiting price differences between exchanges often involves placing limit orders, making Post Only orders ideal for minimizing costs.
- **Range Trading:** Placing Post Only orders at the boundaries of a defined price range can capture profits as the price oscillates. See Range Trading Strategies.
- **Mean Reversion:** If you believe a price will revert to its mean, Post Only orders can be placed at levels where you anticipate a bounce or rejection. Consider Bollinger Bands for identifying potential mean reversion points.
- **Volume Profile Analysis:** Using Volume Profile to identify areas of high volume where price may find support or resistance and placing Post Only orders at those levels.
Conclusion
Post Only orders are a powerful tool for traders who understand their mechanics and limitations. By prioritizing market making and minimizing fees, they can enhance profitability and contribute to a healthier trading ecosystem. However, they are not a “set it and forget it” solution. Successful implementation requires careful price selection, ongoing monitoring, and an understanding of market dynamics. Careful consideration of risk management is also essential. Exchange Fee Structures Bollinger Bands Volume Profile Range Trading Strategies Arbitrage Front-running Time in Force Bid-ask spread Price slippage Risk Management Market Makers
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