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Futures Guide

Long Short Grid Trading

2021-04-14 03:06
What is Grid trading?
Grid trading automates the buying and selling of futures contracts. It is designed to place orders in the market at preset intervals within a configured price range. Grid trading is ideal for volatile and sideways markets when prices fluctuate in a given range. This technique attempts to make profits on small price changes.
Read more about Grid trading.
What is Long/Short Grid?
Long/Short Grid is a trend-following strategy that allows users to trade with the market trend within a grid trading system. This means you can open an initial position (long or short), according to your analysis, while simultaneously placing buy-limit and sell-limit orders at predetermined intervals to capitalize on market volatility and ranging conditions.
For example, a trader could open an initial long position in BTCUSDT to express his bullish view on Bitcoin and simultaneously placing buy-orders at every $1,000 below the market price of BTCUSDT while also placing sell-orders at every $1,000 above BTCUSDT contract’s market price. This allows him to trade with the underlying trend within a grid trading system.
A critical difference between a long/short grid and a neutral grid is the initial opening position. For a long grid strategy, users will have an initial long position opened. Conversely, an initial short position will be opened for a short grid strategy.
Setting up a Long/Short Grid trading strategy
The grid trading bot systematically executes buy- and sell-limit orders based on the user’s parameters. Here’s how you can set up your first long/short grid strategy.
First, launch your grid trading panel by clicking on the Grid Trading tab located on the top right-hand corner of the Binance Futures trading interface.
The first parameter that you must select is the contract on which the trading bot will be deployed. In this example, we will be using BTCUSDT perpetual contract.
Next, input the parameters of your long/short grid strategy on the grid trading panel. The key parameters that you must include are as follows:
  1. The upper and lower boundaries of the price range,
  2. The number of orders to be placed within the configured price range,
  3. The width between each grid order,
  4. Initial margin.
Do note that parameters indicate in the red asterisk (*) are mandatory. The grid trading strategy will not be activated unless all required parameters have been filled (refer to the screenshot below).
Also, if the current market price is greater than the grid trading range, the grid strategy will start with zero position.
Next, assign the initial margin of the position. The system will calculate your Initial Margin value based on the number of grids, leverage, and the strategy’s price range. Note that the denser the grid, the greater the corresponding initial margin.
Do note that the notional value for each grid order must be greater than the minimum requirement. Reduce the number of grids or increase the initial margin to ensure that each grid’s minimum notional value is met.
Insufficient Initial Margin Reminder
When the initial margin is less than the minimum requirement, a notification (shown below) will indicate the minimum initial margin required to activate the grid strategy.
Please ensure that your available balance and maintenance margin is higher than the initial margin to avoid liquidation.
Finally, click Create to place the grid order.
Advanced Settings
The grid trading bot also comes with enhanced functions that enable you to manage your positions and risk better. One of which is the trigger price. The Trigger price is a predetermined price level at which the grid trading bot will be activated. This allows you to dictate when the system will be active when market conditions meet your criteria.
When a grid trade is triggered, the system divides the asset price range into several grid levels according to your parameters and sets pending orders for each price level. When the asset’s price falls, a buy order is executed, and a sell order is placed immediately at a high price. When an asset’s price rises, a buy-order is placed directly at a lower price as soon as a sell order is executed. This strategy sets you up to buy low and sell high and allows you to make profits in volatile market conditions.
Additionally, you can set a stop-loss for your grid positions. Once the asset’s price crosses below or above the stop loss range, your entire grid position will be closed. This feature protects your position from incurring outsized losses when the market behaves unfavorably.
To monitor trading activity, click the Active Grid Tab to find grid trading details.
Lastly, click Terminate to end the grid trading system.
Short Grid Example
Consider a short grid strategy with a configured price range between $9,800 to $10,200 and a grid quantity of 4.
Assuming that the quantity of sell-limit orders at each price is 1, and the initial market price (the latest transaction price) is $10,010. The following scenario shows how a short grid strategy will be activated.
In this case, the lowest sell-limit order ($9,800) is excluded, and the subsequent sell orders are placed upwards from $9,900 to $10,200. If the initial position is transacted between the prices of $9,900 and $10,000, the initial grid orders will be 2, and the grid is updated as follows:
If the initial position is transacted at $9,900, the initial buy grid-order will be 1, and the grid is updated as follows:
After that, the grid is updated according to the user’s parameters.
To summarize, for short grid strategies, the first sell-limit order will trigger the initial short position. Simultaneously, subsequent sell-limit orders will be populated in ascending order towards the highest boundary of your configured grid. Then, buy-limit orders will be placed in the market once the initial short position is triggered, set according to your strategy’s parameters.
Similarly, long grid strategies will be activated once the first buy-limit order is filled. Subsequently, all grid orders will be populated.
Long/Short Grid Profit and Loss Calculation
The profit and loss calculations for a long/short grid strategy consider both the total matched profits and unmatched profit and loss. In this case, completed transactions are recorded as matched transactions, while partially completed transactions are recorded as unmatched transactions. A matched transaction means that every short position (or long position) in the grid strategy is matched by a corresponding buy order (or sell order).
Unmatched P&LThe profit and loss of unmatched grid transactions.(The latest contract price - unmatched grid pair’s average price) * Unmatched volume
Total Realized P&L Total realized Profit & Loss since inceptionmatched grid income + unmatched grid profit and loss
Yield Total return ROIROI = total profit / initial_margin * 100%
Annualized Rate of Return Annualized Total Return APRAPR = ROI * year/T, T is the running time of the strategy
How are positions matched?
Positions are matched using the First In Last Out (FILO) methodology. Under FILO, orders that are filled first will be matched last.
Suppose a long grid strategy is filled in the following order:
The corresponding sell-orders to be matched will be in the following sequence:
PriceOrdersSequenceMatched Sequence
As such, the last buy-order ($10,000) will be matched with a corresponding sell-order at $10,100. Subsequently, the remaining buy orders will be matched at a higher selling price, respectively.
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