Understanding and Using BBO Orders on Binance Futures

Introduction

Step-by-Step Guide

Introduction

What is BBO?

Best Bid Offer (BBO) is a trading feature that refers to the best-available ask price and the best-available bid price on the order book at any given moment. On Binance Futures, BBO allows traders to quickly set limit order prices that align with the current best bid or ask price, potentially facilitating faster order execution and better price matching.

How do BBO orders work?

When you place a BBO order, you're essentially instructing the system to execute your trade at the best available price on the order book. The "best" price is determined by the BBO option you select:

[Counterparty 1] sets your order price at the best available opposite market price. For a buy order, this would be the lowest current ask price. For a sell order, it would be the highest bid price.
[Queue 1] sets your order price at the best price on the same side of the market as your order. For a buy order, this would be the highest current bid price. For a sell order, it would be the lowest ask price.
[Counterparty 5] sets your order price at the fifth best available opposite market price. For a buy order, it would be the fifth lowest ask price. For a sell order, it would be the fifth highest bid price.
[Queue 5] sets your order at the fifth best price on the same side of the market. For a buy order, it would be the fifth highest bid price. For a sell order, it would be the fifth lowest ask price.

How is BBO different from other order types?

BBO orders automatically adjust to the best-available price at the time of order placement, rather than at a specific price point that you input.

BBO orders:

Dynamic pricing: BBO orders dynamically adjust to the best-available bid or ask price at the time of order placement. You select a BBO option (like [Counterparty 1] or [Queue 1]), and the system automatically sets the order price based on the current best price in the order book.
Partial fulfillment and remaining quantity: If a BBO order is partially filled due to limited availability at the best price, the unfilled portion remains open in the order book at the matched price. This differentiates BBO orders from market orders, as they do not move to the next available price but stay at the initially matched price.

Non-BBO limit orders:

Fixed price setting: Non-BBO limit orders require you to set a specific price for buying (price cap) or selling (price floor). The order only executes if the market price reaches this price or better.
No automatic adjustment at order placement: Unlike BBO limit orders, these orders do not adjust to best bids or asks in the order book automatically when placing orders.

Market orders:

Instant execution at current price: Market orders execute immediately at the current market price, offering no control over the execution price.
Potential for slippage: They can experience slippage, filling at progressively worse prices until the entire order is completed.

Stop-limit orders:

Activation and limit logic: These orders become active after reaching a stop price, then follow the logic of a limit order.
BBO integration: With BBO, once the stop price is reached, the limit order can be set at the best-available price at that moment, rather than a predetermined price.

Unique aspects of BBO orders:

Combination of speed and price control: BBO orders combine the immediacy of market orders with more control over the execution price, aligning closer to limit orders in terms of setting a specific execution price.
Flexibility and responsiveness: They offer flexibility and responsiveness to real-time market conditions, ideal for fast-moving markets.

How to use BBO in limit and stop-limit orders on Binance Futures?

1. BBO limit orders

Suppose you want to open a long BTCUSDT position on Binance Futures. Let's say the current best ask price is 40,001 USDT, and you're considering a limit order. Using a limit order, you might set your buy price at 39,999 USDT, hoping the market will reach this point.

However, with a BBO-enhanced limit order using the [Counterparty 1] option, your order automatically aligns with the best current ask price, potentially making you a taker immediately at 40,001 USDT.

Conversely, if you choose the [Queue 1] option, your order might be set at the best bid price, say $39,999 USDT, placing a maker bid order at the top of the order book.

These BBO options help you swiftly adjust to market conditions, either by taking the current best offer or by placing a competitive bid to make the market.

2. BBO stop-limit orders

Stop-limit orders can also utilize the BBO feature. When the stop price is triggered, BBO sets the limit order at the best-available price at that moment. For instance, if you set a stop price for a sell order and select [Counterparty 1], when the stop price is reached, your order will align with the best bid price available, making you a taker.

If you select [Queue 1], your order might be placed at a slightly lower bid, positioning you as a maker. This flexibility is crucial in managing your entries and exits in the market, especially during volatile conditions.

Advantages of BBO orders

Speed: BBO orders can be placed quickly without the need to analyze the order book in detail.
Simplicity: They simplify the trading process, especially for new traders who may not be familiar with complex trading strategies.
Price improvement: BBO orders can potentially lead to price improvement, especially in a fast-moving market where prices can change rapidly.
Efficiency: They are efficient for traders who want to execute trades relative to the current market activity without specifying a fixed price.

Considerations when using BBO orders

Market volatility: During periods of high volatility, the best-available price can change very quickly, which may lead to executions at prices different from your expectation.
Liquidity: In markets with lower liquidity, the spread between the bid and ask prices can be wider, which means that the best-available price may not be as close to the market price as in more liquid markets.
Slippage: There is a risk of slippage with BBO orders, as the best available price may slip between the time the order is placed and when it is executed.

It's important to note that there might be discrepancies between the price at which you place your order and the execution price. This variation is often due to the time delay between placing the order and its execution by the matching engine. Especially in fast-moving markets, prices can change within fractions of a second, leading to differences between your intended order price displayed in the front end and the price at which the order is actually executed.

Please note that the setting of your BBO orders will remain consistent regardless of how you choose to view the order book. For example, if you adjust the display to aggregate orders at larger tick sizes, such as 1, 10, 50, or 100, rather than the default tick size of 0.1, your BBO order will still be placed based on the precise 0.1 tick size intervals. This ensures that your BBO order is always positioned with the most accurate and granular pricing available, independent of the order book display settings you have selected.

You can place BBO orders on the Binance website or app. Let’s see how to place it on the website.

How to place BBO orders on the Binance website?

1. Log in to your Binance account and go to the Binance Futures trading page. Select either a [Limit] or [Stop Limit] order.

2. Click [BBO] next to the price field. By default, it will select [Counterparty 1].

3. You can choose a different BBO level by clicking the price field.

4. Enter the quantity of the asset you wish to buy or sell and click [Buy] or [Sell] to place your BBO order.

Tips for using BBO orders:

Monitor the market: BBO prices are dynamic and can change rapidly with market conditions. Keep an eye on the market to ensure your BBO order aligns with your trading strategy.
Understand the risks: While BBO can provide opportunities for quick execution, during times of high volatility, the best-available price may fluctuate widely.
Check the order book before placing an order: Familiarize yourself with the current bid and ask prices on the order book to better understand how your BBO order will be priced.

How to use BBO in limit and stop-limit orders on Binance Futures?

BBO limit orders

Limit orders with BBO allow you to set an order at the best-available price at the moment of order placement. You still need to specify a limit price, but the BBO feature ensures that this price aligns with the best bid or ask in the market.

This approach is particularly useful in dynamic markets, as it helps to quickly set a competitive limit price. However, while the BBO sets the initial order price, the actual execution still depends on market conditions matching your limit price.

BBO stop-limit orders

Stop limit orders can also utilize the BBO feature. In this case, BBO applies when the stop price is triggered, setting the limit order at the best-available price at that moment. This ensures that once the market price hits your stop price, your limit order becomes active at a competitive rate based on current market conditions. It's important to remember that in fast-moving markets, the execution price may still vary from the limit price set by BBO due to market volatility.