When developing a trading strategy, it is important to correctly calculate the efficiency of capital use. With proper risk management, traders can make more profits.
In leveraged futures trading, this issue is becoming increasingly relevant as it can be critical to prevent liquidation. As multibillionaire Paul Tudor Jones said :
“In the end, the most important thing is to be able to manage risks well.”
Today we are going to talk about the Grid Trading trading tool available on Binance Futures. Grid trading (this is how the English phrase grid trading is translated) allows the prudent crypto trader to significantly increase profits and insure against a sudden market drawdown, eliminating the need for constant monitoring of trades.
What is Binance Futures Grid Trading?
The largest cryptocurrency exchange Binance offers traders a wide range of trading functions. However, beginners often trap themselves into an uncontrollable need to trade and track their investments. In force majeure circumstances, this leads to poor decisions, the consequence of which is emotional and financial losses.
Using external trading automation tools on Binance can lead to even more frustrating results, and normal trading bots are not cheap. But if you’ve decided to work with cryptocurrency futures, then why pay third-party developers when you can use Binance Grid for free. The answer to the question “What is grid trading on Binance Futures?” Is a trading program for automatic and consistent profit. Its use is available completely free of charge.
You don’t need to create an API key to start grid trading. This reduces the risk of a hacker attack. In addition, sometimes, during peak times, communication with Binance becomes slow and external trading bots can be disconnected, resulting in a loss of potential profit.
Setting up your grid strategy
The bot places orders to buy at a lower price with higher sell orders during sideways movement, so it does not require an analytical forecast. The grid trading structure on Binance Futures is formed on the basis of already open perpetual and quarterly contracts.
Grid trading with leverage is allowed. This helps to get more profit, but increases the risk of losing collateral. Be very careful. Your starting position has a liquidation price that will change over the course of your job and this is where the potential threat lies. Binance does not offer any tool to determine exactly where the liquidation price will be when the system checks the grid limits.
To better control your risk exposure, you can choose between isolated or cross margin. The second option may seem more profitable and safer, however, you need to consider each grid separately.
The bot offers long, short and neutral meshes. Despite the fact that grid trading is promoted as an undirected strategy in which profit or loss is taken on agreed orders, this tool gives you the opportunity to choose the most promising directions. A long futures grid is very similar to a spot grid in that it first opens a long buy position, and then, when the price reaches the upper limit, all acquired assets are sold.
The main difference between the three options is the trading entry point:
- A long grid is optimal for a sideways market with a slight uptrend.
- Short for a sideways market with a slight downtrend.
- Neutral for sideways markets with strong support and resistance channels.
The third option is a combination of long and short nets.
Principle and mechanism
Preparation and launch of Grid Trading is divided into several stages:
- Entry to the auction;
- Updating an already created mesh;
- Installing a stop trigger;
- Exit from the auction.
The client can activate the immediate implementation of limit orders, or entry into trades under certain conditions. Structuring the grid involves setting several entry and exit points, as well as the average price level and setting the upper and lower boundaries of the grid.
If the trader chooses a neutral grid, then the lower entry point will be set only after the market leaves the price level that existed when the bot was launched.
The grid trading program cannot be started in the following cases:
- The trader has already launched a grid for this pair, or he has open orders for it.
- The trader has already activated 10 trading grids.
- The futures account operates in a hedging mode.
The launched grid can be stopped by the trader in real time or by a predefined stop trigger. If, when creating the grid, you set the cancellation of orders to automatic mode, then when stopped, they will be closed. Otherwise, you must do it manually.
The grid can be stopped without the participation of a trader during a margin call, manual cancellation of orders and closing of positions, as well as in the absence of a product after the execution of a delivery contract. In this case, the system performs the deletion of limit orders and settlement of open positions.
Now, let’s list the parameters that need to be set when launching grid trading on Binance Futures.
- Trading pair.
- Margin mode.
- Leverage size.
- Lower and upper strike prices.
- Grid mode.
In principle, everything is clear with the first four points. Choose a pair to exchange, cross-over or stand-alone margin mode, decide how much money to borrow, and set a start and end point.
Now let’s look at the grid mode. It can be arithmetic and geometric. In the first case, the gap between the upper and lower prices will be divided into equal segments. Intermediate orders will be executed at their extreme points.
The percentage of the difference between the entry and exit points is calculated by dividing the difference between the high and low points by the total number of orders. After that, a number of price levels are set (price_1, price_2, etc.) and the grid is launched.
In the geometric mode, the open price of a new intermediate order is calculated by multiplying the price of the previous order by a specified number (price_ratio). It is calculated using the following formula:
price_ratio = (grid_upper_limit / grid_lower_limit) ^ (1/grid_count)
The difference in price in percentage (price_diff_percentage) between orders is calculated by the formula:
price_diff_percentage = ( (grid_upper_limit / grid_lower_limit) ^ (1/grid_count) – 1) * 100%
Then price levels are set and the grid is launched. If an error was made in the calculations, and the difference in price is less, the smaller the tick size (tickSize), the system will require you to change the settings. The formula for calculating the minimum allowable difference (min_price_diff) depends on the grid mode.
- Arithmetic progression: min_price_diff = (grid_upper_limit – grid_lower_limit) / grid_count <tickSize;
- Геометрическая прогрессия, min_price_diff = grid_lower_limit * price_ratio <tickSize; price_ratio = (grid_upper_limit / grid_lower_limit) ^ (1 / grid_count).
It is important to calculate the actual profit for each interim order, otherwise it may turn out to be less than the trading commission. The lower (profit_per_grid_lower) and upper (profit_per_grid_higher) profit limits for different grid modes are also calculated differently.
- In arithmetic mode, the formula is used:
profit_per_grid_lower=[1+ (grid_upper_limit – grid_lower_limit)/(grid_count* grid_upper_limit )]*(1-commission%)^2-1
- In the geometric mode, the formula is used:
The amount of the initial margin is entered using the slider or on the keyboard. The value must be the minimum allowed and less than the total balance of the trader’s deposit. The final investment amount (including margin), the number of orders and the allowed margin balance are also indicated.
Waste trading will be activated when the current price of the marking matches the activation price. Stops are activated when the current price and the set limit match. To cancel all orders when the grid stops, select the checkbox in the required column. The same goes for closing all positions.
Short grid example
Let’s say the total investment is equivalent to $ 500. You have selected the ETH / USDT trading pair and set the price in the range of $ 2500 to $ 3300. In this case, the last market price is $ 2889. In arithmetic mode, the grid is divided into 5 equal parts and short sell orders are activated as follows:
- $ 3300;
- $ 3220;
- $ 3140;
- $ 3060;
- $ 2980;
- $ 2900.
The lowest price is excluded, and the rest of the orders are placed in the range from $ 2500 to $ 3300. On the short grid, the first limit order triggers a down short. After the execution of the order at the lowest price, an order is placed to buy at the lower price of the range and then they go sequentially at all prices indicated in the list, filling in ascending order.
When you need to summarize, the amount of profit (or loss) from each matched and unmatched order is taken into account. Long and short grids are designed for trend trading, the difference will only be in the range between orders.
Recommendations and Tips
When setting up the grid, be sure to set stop triggers, they will save you from complete bankruptcy more than once. This is the main rule of any serious trader. Having a small capital, it is not worth choosing trading pairs with bitcoin, work on cheaper coins.
Never set your leverage to maximum and calculate your risk carefully. Remember, the market can suddenly turn the other way. It is better to lose potential profit than real capital, especially if you have the last of this money.
Binance Grid is a free, easy-to-use and secure trading tool that, in the right hands, can be a source of constant profit.