Benefits of Grid Trading on Binance Futures

2022-03-29

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Main Takeaways

  • Grid trading is a strategic tool that automates buying and selling futures contracts at preset intervals around a present price range.

  • It helps traders profit from small price fluctuations, especially in raging markets. 

  • The auto parameters function allows anyone to create a grid trading strategy with just one click.

Binance Futures has created a user-friendly tool to automate buy and sell orders. Users can create an automated strategy to help streamline the trading process with only a few clicks.  

Grid trading is one of the features on Binance Futures to help users trade on the cryptocurrency market. It is designed to work autonomously under preset parameters, allowing users to leverage price fluctuations within a given range, as it aims to profit from small price movements. 

The strategic trading instrument performs best in volatile and sideways markets. The following article explains how to set up a grid trading and the benefits of this strategy.

All Things Grid Trading

Grid trading automates buying and selling crypto derivative contracts on Binance Futures. It systematically executes limit orders at preset intervals within a preset price range, constructing a trading grid that helps traders leverage price movements. 

The longer a cryptocurrency remains stagnant, trading within a price pocket, the higher the chances of an effective grid trading strategy. 

Traders 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 a given cryptocurrency drops, a buy order is executed, and a sell order is placed immediately at a higher price. Conversely, when the price of a given cryptocurrency 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 can set up a trading strategy to buy low and sell high to gain a potential profit from volatile market conditions.

Trade Crypto Systematically

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 success of your grid trading strategy. 

Given the volatility of the markets, traders must be highly selective about which market conditions are suitable for their strategy. 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 leverage price fluctuations.

Put It Into Practice

The grid trading bot allows traders to take advantage of upward and downward price movements by setting orders at multiple points within this range. To increase the effectiveness of this strategy, traders can choose to create a grid bot with pairs having good liquidity and decent fluctuations may be preferable. 

For example, a pair like ETH/BTC is one of the popular trading pairs for futures grid trading as Ethereum and Bitcoin are both major cryptocurrencies with high trading volumes for future contracts. Thus, buying and selling ETH/BTC contracts at different price levels may be easier, which is preferable for grid trading.

Secondly, the prices of ETH and BTC can be volatile, which could create opportunities for grid trading. The relative value of ETH and BTC can change rapidly due to factors such as market sentiment, news events, and changes in the overall market. These fluctuations can create price movements within a defined range, which could be preferable for grid trading.

Example in action

The ETH/BTC pair allows traders to leverage price fluctuations between these cryptocurrencies. In this strategy, a trader places BTC and ETH orders at various price levels within a specific range, allowing them to profit from both the upward and downward price movements of the pair.

To implement this strategy, a trader would set a sell order for ETH at a higher price than the current ETH/BTC rate and a buy order for ETH at a lower price. The sell order represents a position in ETH, and the buy order represents a position in BTC. 

If the ETH/BTC price rises, the sell order will be executed, and the position in ETH will be sold for BTC, resulting in a profit. Conversely, if the ETH/BTC price falls, the buy order will be triggered, and the position in BTC will be used to buy ETH, taking advantage of the lower price.

Grid Trading on Binance Futures

Binance Futures allows users to set a grid trading using automated parameters or by setting manual indicators.

If you are an advanced trader, you can go to the Trading Bots page on Binance Futures to implement your grid trading strategy. Here, you can manually customize and set grid parameters to follow your own indicators.

For those 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 predetermined auto parameters to reduce the learning curve. These include the lower price limit, upper price limit, and grid count. Through the auto parameters function, users can create a grid trading strategy with just one click.

Grid trading allows traders to adopt a systematic approach that can help leverage market volatility. With options available to fit various skill levels, Binance Futures helps simplify the grid trading process. Consider setting up a grid trading strategy today.

Further Reading

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