Main Takeaways
Grid trading automates the buying and selling of futures contracts by placing orders at preset intervals within a configured price range.
It is effective in markets where prices fluctuate within a specific 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 capitalize on market volatility.
Binance Futures offers a strategic trading tool known as grid trading that automates the buying and selling of futures contracts. It is a trading bot that places orders at preset intervals within a configured price range.
Grid trading is suitable for volatile and sideways markets where prices fluctuate within a given range, as it aims to profit from small price movements. In this article, we’ll offer a step-by-step guide to set up systematic trading using grid trading on Binance Futures.
How Grid Trading Works
Grid trading is a strategy that involves placing orders at incrementally increasing and decreasing prices above and below a set price level. It is effective in markets where prices fluctuate within a specific range, as it can automatically execute trades based on a predefined grid.
For example, using grid trading, a trader could place buy orders for BTC at every 1,000 USDT below the current market price, and sell orders at every 1,000 USDT above the market price.
Sell | $24,000 |
Sell | $23,000 |
Current market price | $22,000 |
Buy | $21,000 |
Buy | $20,000 |
When a grid trade is triggered, the system divides the asset price range into several grids and sets pending orders for each price level. If the asset's price falls, a buy order is executed and a sell order is placed immediately at a higher price. If the asset's price rises, a buy order is placed immediately at a lower price. This strategy allows traders to buy low and sell high and as such, capitalize on market volatility.
Advantages of Grid Trading
Traders can leverage the grid trading strategy on Binance Futures to access benefits, including:
Automation: By automating the process of buying and selling futures contracts, traders can carry out their trading strategy without making emotional decisions.
Systematic trades: A trading grid is constructed by systematically placing limit orders at intervals within a pre-established price range.
Capitalize on small price changes: Placing orders at pre-defined intervals presents the opportunity to capitalize on small price movements on the market.
Auto parameters: Binance Futures offers an auto parameters function that allows anyone to create a grid trading strategy with just one click.
Customize grid parameters: Advanced traders can manually adjust and configure grid parameters, which can help you profit from a pre-determined price range.
Access to leverage: Binance Futures allows traders to set their grid trading strategy using leverage. It can be used to make profits in both rising and falling markets by buying low and selling high in an up-trend, and selling high and buying low in a down-trend.
How to Use Grid Trading on Binance Futures
Here’s how you can set up your grid trading strategy:
On the Binance Futures page, choose the [Strategy Trading] option from the menu, then select [Futures Grid].
Select your contract pair. The next step is to choose the contract on which you want the trading bot to be deployed. For this example, we’ll use a BTCUSDT perpetual contract.
From the sidebar, you will be asked to choose between “Auto” mode (to use the recommended parameters) and “Manual” mode (to customize your grid parameters). In this example, we will manually customize and set grid parameters.
Decide order direction. On the grid trading panel, select the grid direction from three options — Neutral, Long, or Short.
In a neutral grid strategy, the system will execute short orders when the price is above the reference point, and long orders when the price is below the reference point.
In a long grid strategy, the first order placed is a buy order, while in a short grid strategy, the first order placed is a sell order. For instance, a trader who is bullish on Bitcoin might use a long grid strategy on BTCUSDT.
This could involve placing buy orders at different intervals below the current market price, and sell orders at different intervals above the current market price.
Choose the grid type. There are two options for constructing the grid — arithmetic mode and the geometric mode. The arithmetic mode creates grids with an equal price difference, while the geometric mode creates grids with an equal price ratio difference.
Choose the price range. Specify the price range in which you expect BTC to remain. Suppose you anticipate that the price of BTC will remain between $20,000 and $30,000 for the next 24 hours. With this strategy, the grid trading bot will automatically place buy orders at lower prices as the price of BTC drops towards $25,000, and sell orders at higher prices as the price starts to recover, in order to make a profit from the price fluctuations.
Enter grid count. Specify the number of orders you want the system to place within the configured price range. The more grids you have, the greater the number of trades you have; however, the profit from each trade will be smaller. This is essentially a balancing act between making small profits from many trades or making larger profits from fewer trades.
Assign the initial margin. The initial margin of the position needs to be set as the system will determine the initial margin value according to the number of grids, leverage, and price range you choose. It's important to keep in mind that the more close the grids are, the higher the initial margin will be.
Conclusion
Grid trading is a good option for traders who want to take a systematic approach to trading and capitalize on market volatility. To ensure profitability, it is important to be selective with the market conditions appropriate for your strategy. This will help you to avoid losing money in a trending market.
In addition, ensure that you have a proper risk management strategy in place, which should include setting appropriate take-profit and stop-loss orders.
Further Reading
(Blog) Benefits of Grid Trading on Binance Futures
(Blog) Crypto Futures Risk and Money Management: 5 Things You Can Do to Better Manage Trading Risk
(FAQ) Futures Grid Trading Auto Parameters Guide
(FAQ) What Is Long/Short Grid Trading
Risk Warning: Grid trading as a strategic trading tool should not be regarded as financial or investment advice from Binance. Grid trading is used at your discretion and at your own risk. Binance will not be liable to you for any loss that might arise from your use of the feature. It is recommended that users should read and fully understand the Grid Trading tutorial and make risk control and trade rationally within their financial ability.
