Post Only Orders are a special form of limit order.
Market Makers use Post-Only orders to ensure their orders don’t fill existing orders on the book. Instead, the order would be rejected. This is because Market Makers aim to provide liquidity and not to remove it.
In this scenario:
Post-Only
Bid: $10 Short/Sell Post-Only Order Placed: $9
If a bid is available at $10, the market is willing to buy at $10. If a trader then places a post-only short/sell order at $9, it would be rejected because it would instantly match with the bid.
The intent of post-only orders is to ensure they add liquidity to the order book, not immediately take from it.
If the Short/Sell Order was not Post-Only, it would be filled at $10. And the trader would need to pay Trading Fees.
Maker Orders are eligible for earning trading fees. Instead of paying fees, Maker Orders receive a reward for the liquidity they bring to the market once they are filled.
Using Post Only Orders provides explicit control, ensuring that you only add to the order book and prevent filling existing maker orders.
This is why this feature can be highly advantageous for implementing a market making strategy.
📖 Definitions: Maker vs Taker:
Maker: Contributes liquidity to the market. These orders do not fill immediately and are placed in the order book.
Taker: Removes liquidity by immediately matching with existing orders.
