Neutral grid is a non-directional contract strategy designed for volatile markets. Its core idea is to capture profits from fluctuations by setting different buy and sell grids during market price movements. This article will quickly guide you through the principles, advantages, disadvantages, and practical order methods of neutral grids.
Table of Contents
Contract grid trading is an automated trading strategy designed to profit from market price fluctuations by repeatedly buying and selling within different price ranges. In simple terms, its core idea is to capture profits from fluctuations by setting different buy and sell grids during market price movements.
What is a neutral grid?
The neutral grid is a type of contract grid, with the core concept being: when the market fluctuates within a certain range, it automatically profits through 'buy low and sell high'.
Unlike directional grid strategies, neutral grids can utilize both upward and downward fluctuations within a price range by simultaneously establishing long and short positions.
What is a contract neutral grid?
Applicable scenario: Use when judging that prices will fluctuate within a range.
Specific operation: Contract grid - neutral mode does not build positions initially. Place short orders above the market price and long orders below. Go short on highs / close long on lows, and close short / open long on lows. Since there is no initial position built, the margin for neutral grid is more abundant compared to long and short grids, resulting in a better liquidation price.
Characteristics of Contract Grid Compared to Spot and Manual Contract Trading
Contract Grid VS Spot VS Futures
What kind of market is the neutral grid suitable for?
When investors expect future market conditions to fluctuate within a certain range, it is suitable to use a neutral grid.
When establishing a neutral grid, it does not buy and sell immediately but instead builds short positions in batches when prices rise and builds long positions in batches when prices fall, purely profiting from fluctuations.
For example, if the price is fluctuating within a box range and does not show a clear trend, it is suitable for pairing with a neutral grid market condition.
Neutral grid is suitable for market conditions.
How does the neutral grid work? Principles of Neutral Grid Operation
Neutral grids, like general grid trading, will place orders at different price levels, but the difference is that neutral grid trading will simultaneously place long and short orders within the price range.
Above the current price: pre-set short orders; below the current price: pre-set long orders.
Neutral Grid Order Placement Principles
After understanding the operation principles of the neutral grid, we can discover the best usage scenarios for the neutral grid:
In a market with extreme fluctuations: Earn substantial profits through up and down movements.
Opening and closing positions at the same price: When closing, the various pending orders of the neutral grid will not incur losses.
Differences between Neutral Grid and Long Grid
Neutral Grid: Simultaneously holding long and short positions, suitable for sideways markets. · Long Grid: Holding long positions, expecting the market to rise, suitable for an upward-trending market.
Long grid: Hold long positions, expecting the market to rise, suitable for a bullish market.
Analysis of Neutral Grid Risks
Advantages of Neutral Grid
● Profit can be earned in both rising and falling markets.
Regardless of market direction, as long as it is within the set price range, profits can be earned from both upward and downward fluctuations.
● 24-hour fully automated trading, no need to monitor the market.
Cryptocurrencies are traded 24 hours a day, unlike stocks which have opening and closing times and no holidays. Neutral grid trading is usually paired with robots for trading, helping you trade even while you sleep, so you don’t have to constantly monitor the market, making it more reassuring.
· Overcoming human weaknesses
Chasing highs and selling in a panic is human nature, but grid trading robots need to have a trading plan set before placing orders to avoid emotional impacts on investors.
Drawbacks and Risks of Neutral Grid
Like most grid trading, there are issues such as low capital utilization, high trading costs, and pausing trading when breaking through ranges. Additionally, here are the drawbacks of neutral grids.
● Significant risks in one-sided market conditions.
After breaking through the price range, as long as it keeps rising or falling and cannot return to the opening price, it may lead investors to incur floating losses or even give back profits.
● Closing conditions are more stringent.
Taking the long grid as an example, it only requires closing at a high position, and most pending orders can be closed at a profit; neutral grids require prices to enter and exit at the same level to avoid losses on pending orders.
Neutral Grid Order Placement Tutorial
Currently, both Binance (official registered download) and Pionex support neutral grid trading robots. Investors can refer to the articles below based on their commonly used exchanges. [Extended Reading]
Binance Grid Trading Practical Teaching: Low-Risk Arbitrage Strategy for Fluctuating Markets
An article to understand whether cryptocurrency contract grid trading can lead to liquidation.
Three steps to create a Pionex Contract Grid
Currently, the Pionex contract grid has been officially released. Android users can download the latest APK from the official website to use the contract grid or update it from Google Play; iOS users can first update through TestFlight and will be updated on the App Store in the future; users can also directly use the contract grid robot on the Pionex web version. The specific operation process is as follows:
Step 1: Download/update and log in to the latest version of the Pionex App to use the Pionex contract grid.
Step 2: Go to the Pionex App homepage, click the bottom menu [Trading] to enter the [Quantitative Trading] page, and you will see [Contract Grid].
Step 3: After entering [Contract Grid], select [Manual Settings] to manually set grid parameters and create the grid. The process for creating a grid using [Manual Settings] is as follows:
Select trading pair (click the default BTCUSDT trading pair in the upper left corner to bring up the contract trading pair selection page)
Choose to go long or short, and set the price range and number of grids.
Input investment amount and select leverage multiple.
Finally, click [Create Robot], and you can also expand [Advanced Settings] below to input parameters such as starting price and automatic take profit and stop loss.
You can also choose [Strategy Follow], click [Long] or [Short] or [Neutral], and the system will recommend corresponding AI strategies, allowing you to choose your preferred strategy to follow.
How to view contract grid profits?
You can directly click [My Orders] on the [Quantitative Trading] page to view the details of all your contract grid order profits.
Contract Grid FAQ
Q: Why is there a distinction between the actual investment amount and the dynamic margin after placing an order?
A: The actual investment amount is the amount you use to place an order, while the dynamic margin is the reserved 'safety cushion'. You can reserve it from the total investment amount when placing an order or add it after placing an order. This amount is used to hedge your floating losses and reduce liquidation risk.
As shown, when you go long, supplementing the dynamic margin will lower your estimated liquidation price, and going short will raise your estimated liquidation price.
When your grid is close to the liquidation price, you can reduce risk by adding dynamic margin. If your grid later makes a profit and moves away from the liquidation price, you can withdraw the margin again.
Should I check the automatic margin reservation? Under what circumstances should I reserve it?
A: When you place an order, if you check the automatic margin reservation, the system will reserve part of the funds from the total investment as a 'safety cushion,' which is the dynamic margin. It will lower your estimated liquidation price when going long and raise it when going short. To protect your grid from the liquidation price, we usually recommend you check this, especially when the leverage multiple is higher. If you are already an experienced contract grid user and prefer to manage your funds freely, you can choose to uncheck the margin reservation first and then manually fill in the amount you want to reserve, or adjust the margin through the margin management function after placing the order.
Q: Will the grid profits automatically turn into margin?
A: Yes, your grid profits will help reduce the risk of liquidation. However, currently, this part of the grid profit cannot be withdrawn.
Q: Can I withdraw profits from the contract grid?
A: This feature is currently not available but is being planned. Please be patient, and thank you for your cooperation.
Q: What is the upper limit for opening contract grids?
A: For BTC, ETH, and ETH/BTC contracts, you can open a maximum of 20 grid orders under a single currency; for BNB contracts, a maximum of 10 orders; for other contracts, a maximum of 5 orders.
For the same grid, the maximum grid number is 500.
Q: What is the difference between the mark price and the latest price?
A: The mark price refers to the estimated real value of the contract. It considers the fair value of an asset to avoid unnecessary forced liquidations during significant market fluctuations. Pionex uses the mark price as the trigger condition for liquidation and also uses the mark price to calculate floating profit and loss.
: What is the funding fee, and why has it been charged?
A: The funding fee is a special mechanism for perpetual contracts aimed at anchoring the contract price to the spot price. This fee exists for both manual trading and grid trading and is settled every 8 hours.
If the funding fee is positive, long position holders pay short position holders; if the funding fee is negative, the opposite is true.
: After charging funding fees, which column will be deducted/added to? How can I view historical details?
A: The income and expenditure of funding fees will be reflected in the floating profit and loss. You can find historical details in order details - transaction records - funding transaction records - funding fee records.
Q: Why are there no buy orders within the grid range?
A: This is because Pionex uses dynamic orders to achieve the second layer buffer technology.
When you have many grid numbers, to maximize your margin utilization, the system does not place all orders at once but places orders near the current price, automatically adjusting your pending orders as the price moves.
Supplementary Explanation: What is the second layer buffer technology?
Due to the maintenance margin requirement of contracts, unfilled orders are usually automatically canceled when orders are close to being liquidated. In such cases, some exchanges choose to directly close grid trading and automatically liquidate positions.
But if the market only spikes and quickly retracts, this handling method may cause users to incur unnecessary losses.
In this case, Pionex does not close users' orders but automatically restores the maximum number of pending orders based on the current position and margin, and after users add margin, automatically places more orders.
It is precisely because of the second layer buffer technology that Pionex supports a maximum leverage of 100 times for contract grids, and users can set parameters such as range and grid number without considering the interrelationship between parameters, greatly enhancing user experience.
Q: The current price is far from the estimated liquidation price; why am I being prompted that 'the order is close to the estimated liquidation price'?
A: Contracts have leverage, and profit and loss fluctuations are often large. To prevent you from not being able to supplement dynamic margin during significant market fluctuations, we will notify you when you are near the liquidation price.
Q: Why can’t I open contract grids even though there is money in the contract account?
A: For risk considerations, Pionex's manual contract trading is an independent account, while robot strategies and spot trading belong to the main account. If your main account lacks funds while the contract account has funds, you can transfer the funds to the main account and then open a contract grid. You can find the transfer button on the account page or transfer in the manual settings page of the contract grid, as shown in the figure below:
Q: Can the contract experience fund offset the contract grid transaction fees?
A: No.
For risk considerations, Pionex's manual contract trading is an independent account, while robot strategies and spot trading belong to the main account. The contract experience fund is only for the manual trading account (that is, the contract account) and cannot be used for the main account.
Q: What is a contract grid robot?
Contract grid robots are tools for automated trading strategies. They are designed to regularly establish long and short positions within a predetermined price range, seeking to profit from price fluctuations. They perform best in volatile markets.
Q: What contracts are supported by the contract grid robot?
In addition to supporting USDT perpetual contracts, Pionex also supports cryptocurrency trading pairs including BTC, ETH, and SOL as quote pairs.
Q: Is there a limit on the number of contract grids?
Yes. The minimum number of grids is 2, and the maximum is 500.
Q: How many contract grid robots can I run simultaneously?
Limit on the total maximum order number for contract grids: 20 or more require an actual investment of 100U, 30 or more require an actual investment of 200U, 50 or more require an actual investment of 300U.
Q: Why is my total profit and loss showing a loss while my grid profit is positive?
Grid profit represents the total profit generated by each completed buy and sell order in the trading strategy. However, total profit and loss includes realized profits and unrealized losses. If the unclosed positions in the robot are currently suffering losses and the realized grid profits are insufficient to offset, you may see negative total profit and loss.
Q: Can I add more margin to my contract grid trading robot?
Yes, you can go to the 'More' page and click 'Adjust Margin' to add additional margin. The increased margin will serve as available balance to maintain your position or cover fees and will not affect any robot parameters.
Q: Why do the total number of buy and sell orders not equal my grid count?
Our contract grid robot adopts a dynamic order mode, keeping a limited number of orders near the current price, thus improving your fund utilization and profits while reducing potential liquidation risks.
Conclusion
Although the neutral grid is not a risk-free arbitrage tool, if paired with the right strategies and capital management, it can indeed create stable cash flow in volatile markets.
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