Grid Trading on Binance Futures.
What Is Grid Trading?
Grid trading is when orders are placed above and below a set price, creating a grid of orders at incrementally increasing and decreasing prices. Grid trading is most commonly associated with the foreign exchange market. Overall the technique seeks to capitalize on normal price volatility in an asset by placing buy and sell orders at certain regular intervals above and below a predefined base price.
For example, a forex trader could put buy orders every 15 pips above a set price, while also putting sell orders every 15 pips below that price. This takes advantage of trends. They could also place buy orders below a set price, and sell orders above. This takes advantage of ranging conditions.
An advantage of grid trading is that it requires little forecasting of market direction and can be easily automated. Major drawbacks, however, are the possibility of incurring large losses if stop-loss limits are not adhered to and the complexity associated with running and/or closing multiple positions in a large grid.
The idea behind with-the-trend grid trading is that if the price moves in a sustained direction the position gets bigger to capitalize on it. As the price moves up, more buy orders are triggered resulting in a bigger position. The position gets bigger and more profitable the further the price runs in that direction.
Benefits of Grid Trading on Binance Futures.
Automated Tradings Based on Highs and Lows.
Grid trading essentially automates buying and selling crypto derivatives contracts in Binance Futures. It systematically executes limit orders at preset intervals within a preset price range, constructing a trading grid that enables you to make big profits on small price changes.
The longer a cryptocurrency remains stagnant, trading within a price pocket, the higher the chances of unlocking the true power of grid trading.
You can choose from two predefined modes, arithmetic and geometric. The former constructs each grid with an equal price difference, while the latter creates each grid with an equal price ratio difference.
When the price of given crypto drops, a buy order is executed, and a sell order is placed immediately at a higher price. Conversely, when the price of given crypto rises, a buy order is placed immediately at a lower price as soon as a sell order is executed.
With a grid trading strategy, you are almost guaranteed to buy low and sell high to profit from volatile market conditions.
One of the main benefits of grid trading is that it allows you to trade systematically without the need to forecast the direction of a trend. Instead of constantly monitoring real-time market movements, you can set up your grid trading strategy and let it do the hard work for you.
Even in trending markets, prices tend to consolidate on the lower time frames. This is where you can also capitalize on small price changes. Still, determining a reasonable price range in any time frame is the key to ensuring the profitability of your grid trading strategy.
You must be highly selective about the market conditions suitable for your strategy to avoid being on the wrong side of a trending market. So you must employ proper risk management measures, understand how much leverage you can use, and set conservative take-profit and stop-loss orders.
Suppose you expect BTC to hover in a price range between $40,000 to $50,000 in the next 24-hours. You could set up a grid trading strategy within this predetermined price range.
As the price of BTC drops towards $45,000, the grid trading system will set up buy orders on the way down at a lower price than the market. When prices start to recover, the grid trading system will place sell orders on the way up at a higher price than the market, attempting to make you profit from price fluctuations.
Auto Parameters Function.
If you are an advanced trader, you can go to Binance Futures’ Strategy Trading to put into practice your grid trading strategy. Here, you will be able to manually customize and set grid parameters on your own that will help you profit from a predefined price range in any of the available derivatives contracts.
And for those of you who don’t know how to set parameters to build your own grid trading strategy, don’t worry! We got you covered.
Binance Futures has built a set of recommended parameters to reduce the learning curve. These include lower price limit, upper price limit, and grid count. With the auto parameters function, you will be able to create a grid trading strategy with just one click.
Grid trading is ideal for anyone who wants to trade in a systematic approach. So don’t miss the opportunity to capitalize on market volatility. Set up your grid trading strategy today!
How to Set Auto Parameters as a Novice.
1. Click [Strategy Trading] — [Futures Grid] located at the top-left corner of the Binance Futures trading interface.
2. Navigate to the right sidebar of the Futures Grid trading interface. On the [Auto] tab, verify the recommended parameters and set up your [Initial Margin].
3. Once you have decided the amount of margin that you want to allocate to your grid trading strategy, click [Create], and confirm your grid order so the system automatically places buy or sell orders at the preset prices. It is worth noting that the recommended parameters are set in a Neutral direction and in Arithmetic Mode by default.
Please be aware that the auto parameters function will not work when there is not enough trading history on a given asset. Under such circumstances, you will have to set the parameters manually as explained here or click [Copy parameters to Manual settings] to modify the lower price, upper price, and grid number.
How are auto parameters calculated?
Upper & Lower Price
- Upper Band = MA + bbm * Standard Deviation
- Lower Band = MA — bbm * Standard Deviation
Grid Number = (grid_upper_limit — grid_lower_limit)/ATR
Setting up Your Futures Grid Trading Strategy.
1. After logging in, go to the USDⓈ-M Futures trading interface and click [Grid Trading].
If you’re using Binance App, tap [Futures] — [USDⓈ-M Futures] — [Grid Trading].
2. Select a symbol to execute the strategy and set the grid parameters. Click [Create] to confirm.
Please note that the following situations may cause grid creation to fail:
- When you are currently running a grid trading on the selected symbol.
- When you have open orders or positions on the selected symbol.
- When you are under hedge position mode, please adjust to one-way mode.
- When you exceed the limit, the total quantity of working and limit triggered grid trading is 10.
Futures Grid Trading Mechanism
The grid trading life cycle:
- Grid Trigger (optional)
- Initial structure
- Open position
- Grid Update
- Stop Trigger (optional)
Setting a Futures Grid Trigger (optional)
For parameters #10 & #11:
Users can choose to start grid limit orders immediately or choose to trigger when the market price reaches a certain value. The grid orders will be triggered when the chosen trigger price (Last price or Mark price) rises above or falls below the trigger price you enter.
Defining the initial structure of grid strategy
For parameters #1, #2,# 3,# 4 & #6:
The initial structure is to determine a series of price levels, according to the latest market price (buy, sell, mid-price), place sell limit orders at a price higher than the market price, and a buy limit order at a price lower than the market price, and wait for the price to be triggered.
Note that the number of limit orders is the number of grids +1 at the time of initial construction because no positions are held. One of them (the one near the latest market price) is the initial opening order waiting to be executed.
Setting a Stop Trigger (optional）
For parameter #12:
Users can choose to manually terminate grid operation or to set Stop Trigger.
Stop Trigger means that when the market price rises above Stop_upper_limit or falls below Stop_lower_limit i.e. the market is no longer following a swinging trend, the grid will stop its operation.
For parameters #13 & #14:
Users can choose whether to cancel all orders and close all positions manually or automatically after the grid is stopped.
When ‘cancel all orders’ on stop is enabled, the system will automatically cancel all the unfilled orders for the symbol when the grid is stopped; When close all positions on stop are enabled, the system will automatically close all the open positions at the market price for the symbol when the grid is stopped
Note that during the grid operation, the following scenarios will cause the grid to terminate:
- Manually terminate the grid;
- Insufficient margin causes some positions to be liquidated or fail to place orders;
- Manually cancel some or all grid limit orders;
- Manually close some or all grid positions;
- When the delivery contract is delivered, the product no longer exists and the grid strategy will be automatically stopped. During the delivery process, the system will automatically remove user limit orders and settle open positions.
The system will prompt for the above actions if a grid is currently in operation, notification as shown below:
The recommended grid trading leverage is lower than 20, because when the leverage is too high, the insufficient margin may cause position liquidation or opening order, and lead the grid to terminate. If the leverage is higher than 20x, a second confirmation will pop up to remind users.
Now that we’re all caught up with this Trading strategy, you would want to sign up for an account on Binance Futures and give it a try. Don't worry, you might just get some cashback bonus!
Happy trading, without emotions!