Do you know why are billionaires like Bill Gates, Jeff Bezos, and others buying farmland?

 What are derivatives in Binance?

A derivatives Binance is a financial contract based on the speculated future value of an underlying 

asset. Unlike a spot trade, a derivatives trade does not directly involve the asset.

What Is Open or market Order?

An Open /market order is an order to quickly buy or sell at the best available current price. It needs 

liquidity to be filled; meaning that it is executed based on the limit orders that were previously placed 

on the order book.

Unlike limit orders, where orders are placed on the order book, market orders are executed instantly at 

the current market price, meaning that you pay the fees as a market taker.

How To Use Open/market Order?

Example: You want to create a market/ open order to buy 2 Binance Coins (BNB). After login in to your 

Binance account, choose the BNB market you want (e.g., BNB/USDT) and go to the trading page. Then, 

choose the Market order tab which is your open order, set the amount to 2 BNB, and click the ‘Buy BNB’ 

button. (Sell BNB is the same as Buy BNB)

How To Use Order Types On Binance Exchange

How To Use Open Order Types On Binance Exchange

After that, you will see a confirmation message on the screen, and your open / market order will be 

executed.

How To Use Open Order Types On Binance Exchange

Since open orders are executed right away, your market buy order will match the cheapest limit sell 

order available on the order book, in this example 2 BNB for 5.2052 USDT each.

How To Use Open Order Types On Binance Exchange

But if You want to buy 500 BNB at the current market price. The cheapest limit sell order available will 

not be sufficient to fill your entire market buy order, so your order will automatically match the 

following limit sell orders, working its way up the order book until it is completed. This is called slippage 

and is the reason why you pay higher prices and higher fees (because you are acting as a market taker).

How To Use Open Order Types On Binance Exchange

When Should You Use It?

Open/market orders are handy in situations where getting your order filled is more important than 

getting a certain price. This means that you should only use open/market orders if you are willing to pay 

higher prices and fees caused by the slippage. In other words, open orders should only be used if you 

are in a rush.

Sometimes you might be in a situation where you had a stop-limit order that was passed over, and you 

need to buy/sell as soon as possible. So if you need to get into a trade right away or get yourself out of 

trouble, that’s when open orders come in handy.

However, if you’re just coming into crypto for the first time and you are using Bitcoin to buy some 

altcoins, avoid using open orders because you will be paying way more than you should. In this case, you 

should use limit orders.

What Is Limit Order?

A limit order is an order that you place on the order book with a specific limit price. The limit price is 

determined by you. So when you place a limit order, the trade will only be executed if the market price 

reaches your limit price (or better). Therefore, you may use limit orders to buy at a lower price or to sell 

at a higher price than the current market price.

Unlike market orders, where trades are executed instantly at the current market price, limit orders are 

placed on the order book and are not executed immediately, meaning that you save on fees as a market 

maker.

How to use it?

Example: You want to sell BNB at a higher price than what is currently being bid. After logging in to your 

Binance account, choose the BNB market you want (e.g., BNB/BTC) and go to the trading page. Then, 

choose the Limit order tab, set the price and amount, and click the ‘Sell BNB’ button. You may also set 

the amount by clicking the percentage buttons, so you can easily place a limit sell order for 25%, 50%, 

75% or 100% of your balance. (Buy BNB is the same as Sell BNB)

After that, you will see a confirmation message on the screen, and your limit order will be placed on the 

order book, with a small yellow arrow.

What is Binance liquidation?

It is an instrument that creates market orders to exit leveraged positions. The term liquidation simply 

means selling assets for cash. ... You enter a leveraged long position in the BTC/USDT market with 10x 

leverage, meaning your position size will be $600. So, this $600 consists of your $60 plus $540 that you 

borrow.

What Does Liquidation Mean and How to Avoid It?

Liquidation occurred when a trader has insufficient funds to keep a leveraged trade open.

The crypto market’s high volatility and which means a Binance future is not left out. This means 

liquidations are a common occurrence.

Bitcoin and other cryptocurrencies such as Binance are renowned for being high-risk investments prone 

to extreme price movements. But while this volatility makes them a big concern for regulators, it also 

presents an opportunity for investors to generate significant and meaningful profits, particularly when 

compared to traditional asset classes like stocks and commodities. Over 2020, amid the coronavirus 

outbreak, bitcoin ended the year up 160% versus the S&P 500 at 14% and gold up 22%. So with these 

recent findings, it’s a big win!

Furthermore, this volatility is the potential to increase the size of crypto trading positions through the 

use of derivatives products like margin trading, perpetual swaps and futures. Derivatives are contracts 

based on the price of an underlying asset and allow people to bet on the asset's future price. Crypto 

derivatives first appeared in the month of 2011 and have gathered huge momentum in more recent years, 

especially among gung-ho retail investors looking to get the most out of their trading strategies. 

With margin trading, traders can increase their earning potential by using borrowed funds from a 

cryptocurrency exchange. Binance, Huobi, and Bitmex are some of the leading examples of centralized 

crypto exchanges that allow customers to trade on margin. 

But there’s something very significant to note here. While borrowing funds to increase your trade 

positions can increase any potential gains, you can also lose your invested capital just as easily, making 

this type of trading is a two-edged sword.

What is liquidation?

In the context of cryptocurrency markets, liquidation simply means when an exchange forcefully closes a 

trader’s leveraged position due to a partial or total loss of the trader’s initial margin. It happens when a 

trader is unable to meet the margin requirements for a leveraged position (fails to have sufficient funds 

to keep the trade open.) Liquidation occurs in both margin and futures trading.

Note: Trading with a leveraged position is a high-risk strategy, and it is possible to lose your entire 

collateral (initial margin) if the market makes a large enough move against your leveraged position. In 

fact, some countries like the United Kingdom consider it so risky it has banned crypto exchanges from 

offering retail investors leveraged trading products to protect novice traders from being liquidated and 

losing all their invested capital.

You can keep track of the percentage the market needs to move against your position it to be liquidated 

by using this formula:

Liquidation % = 100 / Leverage

For instance, if you use 5x leverage, your position will be liquidated if the price of an asset moves 20% 

against your position (100/5 = 20.) 

How to avoid liquidation

When using leverage, there are a plentiful of options available to mitigate the chances of being 

liquidated. One of these options is known as a “stop-loss.”

A stop-loss, otherwise known as a “stop order” or “stop-market order” is a command and an advanced 

the order that an investor places on a crypto exchange, instructing the exchange to sell an asset when it 

reaches a particular price point. 

When setting up a stop loss, you will need to input:

Stop price: The price where the stop loss order will execute

Sell price: The price at which you plan to sell a particular crypto asset

Size: How much of a particular asset do you plan to sell

If the market price reaches your stop price, the stop order automatically executes and sells the asset at 

whichever price and amount are stated. If the trader feels the market could move quickly against them, they 

might choose to set the selling

price lower than the stop price so it’s more likely to get filled (bought by 

another trader.)

The primary purpose of a stop loss is to limit potential losses. To put things in perspective, let’s consider 

two scenarios. 

EXAMPLES

Scenario 1: A trader has $5,000 in his account but decides to use an initial margin of $100 and leverage 

of 10x to create a position of $1,000. He places a stop loss at 2.5% from his entry position. In this 

instance, the trader could potentially lose $25 in this trade, which is a mere 0.5% of his entire account 

size.

If the trader does not use a stop loss, his position will be liquidated if there is a 10% drop in the price of 

the asset. Remember the liquidation formula above.

Scenario 2: Another trader has $5,000 in his trading account but uses an initial margin of $2,500 and a 3x 

leverage to create a position of $7,500. By placing a stop loss at 2.5% away from his entry position, the 

trader could lose $187.5 in this trade, a 3.75% loss from their account.

The lesson here is that while using higher leverage is typically considered very risky, this factor becomes 

very important if your position size is too large, as seen in the second scenario. As a rule of thumb, try to 

keep your losses per trade at less than 1.5% of your entire account size.

Where to set a stop loss

When it comes to margin trading, risk management is arguably the most significant lesson. Your primary 

goal should be to keep losses at a minimum level even before thinking about profits. No trading model is 

infallible. Therefore, you must deploy mechanisms to help you survive when the market doesn’t go as 

expected.

Placing stop losses correctly is vitally important, and while there is no golden rule for setting a stop loss, 

a spread of 2%-5% of your trade size is often recommended. Alternatively, some traders prefer to set 

stop losses just below the most recent swing low (provided it’s not so low you’d stand to be liquidated 

before it triggered).

Secondly, you should manage your trading size and the associated risk. The higher your leverage, the 

higher your chances of being liquidated. Using excessive leverage is akin to exposing your capital to 

unnecessary risk. Moreover, some exchanges manage liquidations aggressively. BitMEX, for example, 

only allows traders to hold BTC as initial margin. This means if bitcoin’s price falls, so too does the 

amount of funds held in collateral resulting in faster liquidations.

Due to the risk associated with leverage trading, some exchanges have moved to lower the limit traders 

can access. Both Binance and FTX are among the leading centralized crypto exchanges to slash leverage 

limits from 100x to 20x.

How liquidation works

Futures exchanges have established various risk management mechanisms to protect highly leveraged 

traders from incurring significant losses. One of which is liquidation, a risk control feature that prevents 

traders from falling into negative equity.

In volatile markets, leveraged positions are prone to price gaps and may cause a trader’s equity to 

plunge into negative territory instantaneously. In these situations, losses can exceed the maintenance 

margin.

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