Grid trading is a trading practice in which the trader places orders at incrementally increasing and decreasing price points from a given price level. This can be rewarding in markets in which price fluctuates across a certain range, and it can be automated using grid trading bots.
As a hypothetical example, taking the BTC/USDT contract pair at an imaginary current price of 30,000 USDT. A user can set grid trading parameters to place buy orders on the BTC contract at every 1,000 USDT below current market price (such as 29,000 USDT followed by 28,000 USDT) and sell orders at every 1,000 USDT above current price (such as 31,000 USDT, then 32,000 USDT). This simple grid strategy would then look like:
Order Placed | Price |
Sell | 32,000 USDT |
Sell | 31,000 USDT |
Current market price | 30,000 USDT |
Buy | 29,000 USDT |
Buy | 28,000 USDT |
Once the grid trading bot is activated, it will divide the contract price range into grids and place pending orders for each incremental level. If the price of BTC/USDT contract falls by 1,000 USDT, a buy order is executed and then a pending sell order is placed immediately at a higher price. The same occurs in reverse if the asset price rises. This way, a user is able to consistently buy low and sell high automatically following market fluctuations.
Grid trading offers a systematic way of trading that helps eliminate emotions from decision-making. It enables users to capitalize immediately on even small changes in price without requiring the user to be manually paying attention to the market the entire time.
