Tutorial: What Is Grid Trading and How to Use It?
“Grid trading is a step up from ‘shuttle trading’ — creating a batch of positions that cover wider spaces for arbitrage,” said Jeff Mei, Director of Global Strategy.
Huobi Futures, a world leading derivatives trading platform under Huobi Group, this week announced the launch of its new feature Grid Trading during the celebration of its 8th anniversary. Grid trading features capitalize on price volatility by placing buy and sell orders at certain regular intervals above and below the price of a particular asset. To all of those new to the product, this article can help explain the ins and outs of grid trading.
🔹What Is Grid Trading?
Grid trading is a strategic tool for quantitative trading that allows users to place a series of buy and sell orders within a set price range in a market range. By automatically executing “buy low” and “sell high” functions, it guarantees the selling price to be higher than the buying price each time. This helps investors gain profits from sideways trends.
1. Key Items
- Grid trading involves placing buy and sell orders at set intervals within a set price.
- This grid can be created to profit from specific price ranges.
- To profit from the ranges, place Open Long orders at intervals below the set price, and Open Short orders above the set price.
2. The Process to Run a Grid Strategy
3. Order Status in Different Stages
🔹How Does It Work?
An advantage of grid trading is that it requires little prediction of market direction and can be easily automated. In ranging markets, against-the-trend grid trading tends to be more effective.
For example, a trader places buy orders at regular intervals below a set price, and places sell orders at regular intervals above the set price. As the price falls, the trader gets long. As the price rises the sell orders are triggered to reduce the long position and potentially get short. The trader profits as long as the price continues to oscillate sideways, triggering both buy and sell orders.
🔹How to Gain Profits?
Assume that the latest price of BTC/USDT swaps is $14,800 USDT. Sally executes a grid trading strategy with the following parameters
(Maker Fee = 0.02%, Contract Face Value = 0.001 BTC, Usable Coefficient = 1.1):
Highest Grid Price: $20,000 USDT;
Lowest Grid Price: $10,000 USDT;
Grid Number: 10 ; Leverage: 10; Price Mode: Arithmetic
Amount Mode: Equal Quantity; Deposit Margin: $30 USDT
Condition of Termination: $9,000 USDT;
Termination Operation: Cancel and Close All;
To Calculate Based On the Parameters Above:
- Spread of Arithmetic Grid= (Highest Grid Price — Lowest Grid Price) / (Grid Number) = ($20,000USDT — $10,000USDT) / 10 = $1,000 USDT;
- Place an order every $1000 USDT between $10,000 USDT and $20,000 USDT. When the grid is in initialization, no order will be placed at the grid price of $15,000 USDT because it is the nearest price to the latest price of $14,800 USDT. Meanwhile, the sum of the open prices of all orders = $20,000USDT + $19,000 USDT +…. $11,000USDT + $10,000USDT= $150,000 USDT;
- Equal Quantity: Quantity of a Single Order = (Deposited margin / Usable Coefficient) * Leverage / [Face Value * Sum (Open price of all orders) * (1 + Leverage * Maker fee)] = (30 / 1.1 * 10) / [0.001 * 150,000 * (1 + 10 * 0.02%)] = 1.8145, which will be rounded down to 1 Cont.
After grid trading strategy is initialized, the grid orders will be placed as below:
If the market price rises from $14,800USDT to $16,500 USDT, the sell order of $16,000USDT will be filled and the grid orders will be updated as shown below:
At this time, the ID of the position-closing order with grid price $15,000 USDT will be recorded in the position-opening order of $16,000 USDT. These two orders will be regarded as a pair.
Meanwhile, if the market price declines from $16,500 USDT to $13,500 USDT, the buy orders of $15,000USDT and $14,000USDT will be filled. The grid orders will be updated as following:
Next, if the latest price drops to $9,000 USDT and reaches the termination condition, the strategy will be terminated and the system will close all positions with all orders cancelled according to the previous setting. The grid orders will be updated as below before the termination of the strategy:
What if the latest price exceeds the lowest/highest grid price? In this case the orders will be placed as below:
Case 1: If the latest price is lower than the lowest grid price, then
Case 2: If the latest price is higher than the highest grid price, then
How to Set a Grid Strategy?
1. Log in to futures.huobi.com and click “Grid” on the Futures’ trading page;
2. Set strategical parameters and click “Create”, then click “Confirm” after you check all the parameters;
3. For a grid running in process, you can “Terminate”, “Share” and view “Details”.
If you would like to revise the trigger price, just do it before the strategy is triggered; If you would like to modify the “Conditions of Termination,” “Effective Duration,” or “Termination Operation,” do it before the strategy is terminated.
Starting at 7:00 (London time) on Nov. 9, users can trade USDT-marigned swaps using the grid trading feature to equally share 20,000 USDT in prizes. The campaign will last for eight days. Users can simply run a grid trading strategy and accumulatively invest no less than 100 USDT in this strategy to receive rewards.
Start grid trading on Huobi Futures: https://dm.huobi.com
