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Summary
Grid trading automates the buying and selling of futures by placing orders at predetermined intervals within a specified price range.
Grid trading is effective in markets where prices fluctuate within a certain range, as it can automatically execute trades based on a predefined grid.
This strategy is a good option for traders who want to take a systematic approach to trading and benefit from market volatility.
What is grid trading?
Binance futures contracts offer a strategic trading tool known as grid trading, which automates the buying and selling of futures contracts. It is a trading bot that places orders at predetermined intervals within a specified price range. Grid trading is suitable for volatile and sideways markets where prices fluctuate within a certain range, aiming to profit from minor price movements.
How does grid trading work?
Grid trading is a strategy that involves placing orders at increasing and decreasing prices above and below a specified price. It is an effective strategy in markets where prices fluctuate within a certain range, allowing it to automatically execute trades based on a predefined grid.
For example, using grid trading, a trader can place buy orders for BTC at every $1,000 below the current market price, and place sell orders at every $1,000 above the market price.
Sell. $24,000
Sell. $23,000
Current market price. $22,000
Buy. $21,000
Buy. $20,000
Once grid trading begins, the system divides the price range of the assets into several grids and places orders at each price level. If the asset price drops, a buy order is executed and a sell order is immediately placed at a higher price. If the asset price rises, a buy order is immediately placed at a lower price, thus allowing this strategy for traders to buy at a low price and sell at a high price, profiting from market volatility.
Advantages of Grid Trading
In Binance futures contracts, traders can utilize a grid trading strategy to take advantage of market volatility. By doing so, traders can access specific advantages.
1. Automation
By automating the process of buying and selling futures, traders can execute their trading strategies without making emotional decisions.
2. Systematic Trading
A trading grid is created by systematically placing limit orders at intervals within a predefined price range.
3. Profiting from Price Changes
Placing orders at predetermined intervals provides the opportunity to benefit from small price movements in the market and make a profit.
4. Automatic Variables
Binance futures contracts offer the automatic variables feature that allows anyone to create a grid trading strategy with just one click.
5. Customizing Grid Variables
Advanced traders can manually adjust and configure grid variables, which can help profit from a pre-defined price range.
6. Leveraging
Binance futures contracts allow traders to implement their own grid trading strategy using leverage. They can be used to profit in both bullish and bearish markets by buying at a low price and selling at a high price in an upward trend, and selling at a high price and buying at a low price in a downward trend.
How to use grid trading in Binance futures?
Grid trading on Binance futures may be new or confusing for individuals who have not browsed the Binance website or app. A detailed step-by-step guide is available to help set up a grid trading strategy:
The first step is to log in to Binance and access the Binance futures contracts page. From this point, you should select the [Strategy Trading] option from the dropdown menu and specify [Grid Futures].
The next step is to choose the contract on which you want to deploy the trading bot. In this example, the perpetual BTC/USDT contract was chosen.
On the sidebar, there will be two different modes you can choose from for grid variables: 'Automatic' and 'Manual'. The automatic mode is set to use recommended variables, while the manual mode allows for customization of grid variables. In this example, manual customization will be explained.
Once the manual mode is selected, the order direction must be determined. In the grid trading panel, there are three options for grid direction - neutral, buy, or sell short.
In a neutral grid strategy, the system executes sell short orders when the price is above the reference point, and buy orders when the price is below the reference point. In a buying grid strategy, the first order placed is a buy order. In a short selling grid strategy, the first order placed is a sell order. For example, a trader expecting the price of Bitcoin to rise might use a grid strategy to buy BTC/USDT.
After choosing the direction of the grid orders, the type of grid must be specified. For this matter, there are two options - arithmetic mode and geometric mode. The arithmetic mode creates grids with equal price differences, while the geometric mode creates grids with equal percentage price differences.
When selecting the mode, you should choose your preferred price range, as well as specify the price range you expect the BTC to remain in. Suppose a trader expects the price of BTC to stay between $20,000 and $30,000 over the next 24 hours. Using this strategy, the grid trading bot automatically places buy orders at lower prices when the price of BTC approaches $25,000, and sell orders at higher prices when the price starts to recover, thereby profiting from price fluctuations.
The user must then fill in the number of grids and specify the number of orders that the system should place within the specified price range. The more grids there are, the more trades there will be. However, the profit from each trade will be smaller.
The final step is to customize the initial margin trade. This initial margin trade should be customized to help the system determine the initial margin value based on the number of grids, leverage, and the selected price range. You should also be mindful that the closer the grids are, the larger the initial margin trade will be.
Final Thoughts
Grid trading is a good option for traders who want to take a systematic approach to trading and profit from market volatility. To ensure profitability, it is important to be selective with the appropriate market conditions for your strategy, as being selective will help avoid losing money in trend-based markets.
Moreover, ensure that appropriate risk management strategies are in place, including setting appropriate take profit and stop-loss orders. It is important to take profits and minimize risks during your market dealings.