It’s super easy to make money by investing, just buy low and sell high and you’ll make money! Everyone knows this truth, but the problem is that it can’t be done... But there are machines that can help you buy low and sell high, that is grid trading, but are the returns reliable? Is it really robust? In what market conditions is it suitable for use? Today I will give you a detailed analysis of the advantages and disadvantages of grids.
What is grid trading
Grid trading is a trading robot that automatically conducts transactions when conditions are met through a program. Simply put, grid trading conditions are: buy a little when it goes down, sell a little when it goes up, and continue to buy low and sell low. High, the process is fully automatic. Grid Trading = a trading robot that can automatically buy low and sell high.
How grid trading works
Set a price range, such as 80 to 120, and then set the grid size, for example, one grid for every 2 yuan. In the range, part of the price will be sold for every 2 yuan that rises, and part of the price will be bought for every 2 yuan that falls. You don’t have to watch the market and place orders yourself, let the program execute it automatically, and continuously buy low and sell high. This is grid trading.
Each successfully matched buy or sell order is one square of profit. In this example, one square is a price difference profit of 2 yuan. Although the profit is low for a small square, if the market continues to fluctuate and transactions are continued 24 hours a day, many transactions will accumulate. develop into considerable profits.
Small reminder: 2 blocks of spread profit is not equal to 2 blocks of profit, because the buying and selling unit of one square may be less than one complete coin. This part depends on the total investment amount. If the investment amount is not large, the units bought and sold each time the trading conditions are triggered are only 0.1 coins, the price difference of 2 blocks x 0.1 coins = 0.2 blocks, and the actual profit earned per unit is only 0.2 blocks.
Calculation of actual trading profit = currency spread * trading unit
In other words, even if one Bitcoin costs US$30,000, the rewards we earn are only related to our investment principal and the rise and fall. Cryptocurrency is highly volatile. If you simply buy and hold it, you will not make any profits during the price fluctuation process. If you continue to place orders and trade by yourself to earn the price difference, it will be too time-consuming and labor-intensive. Grid trading is facing this kind of market situation. A good helper, let the robot automatically buy low and sell high to make profits during price fluctuations.
Advantages and Disadvantages of Grid Trading
advantage:
No need to keep track of the market, free from human weaknesses, 24H continuous automatic trading
You can also make money during range fluctuations
shortcoming:
If the price exceeds the set price range, the operation will be suspended.
Fund utilization efficiency is low
Risks of grid trading
Although grid trading can automatically buy low and sell high, this does not mean that grid trading is a guarantee of making money. It is still necessary to correspond to the appropriate market trend and set the corresponding grid robot strategy according to the future market trend.
Taking the spot grid as an example, after setting the robot to start entering the market, if the price rises all the way and does not turn back, the grid will sell a little bit every time it rises a little, and continue to sell until the price breaks through the upper limit of the range and all are sold out. The price continues to rise but we no longer have the coins in hand, so the overall profit is not as good as simply buying and holding.
Or if the price falls all the way, the grid will buy a little bit every time it falls, and continue to buy, until the price falls below the lower limit of the range, just buy all the funds in, and then if the price rises, sell a little bit every time it rises, and continue to buy. Accumulate profits! But if the price continues to fall, we are full of lock coins.
When encountering a unilateral market trend, you may not earn anything, or even be stuck with a lot of cash.
Encountering inappropriate market conditions is one of the biggest risks of grid trading.
Other risks include unfamiliarity with grid trading and incorrect settings when setting strategies and parameters, resulting in poor operating efficiency of the robot and low trading results. And grid trading is a service provided by a centralized exchange. You must open an account and deposit funds in a centralized exchange to operate, and you must bear the risks of the centralized exchange itself.
Well-known exchanges may fail at will. Not putting all your eggs in the same basket is the basic principle of investing in cryptocurrency.
How much can you earn from grid trading?
When establishing a grid, a position will be established in the process. Simply put, it is the currency or contract held, which may be long or short. The part held will have so-called book gains and losses based on the current market price. In addition, the grid robot automatically buys low and sells high, and transactions completed with one buy and one sell pair will have realized profits and losses.
For example, the picture above shows the interface of Binance Grid. The floating income is the book profit and loss of the held position, and the grid profit is the realized profit and loss. As long as the buying and selling matching is successful, there will be only profit and no loss. The sum of the two That’s the total profit and loss.
Therefore, although the grid can make money by buying low and selling high, the grid trading part is a profit, but the overall loss may still be due to the book loss of the holding position. If you are long, if the currency falls too much, the overall loss will still be lost. If you go short, you will lose money if the currency rises too much. But because the profits from grid trading can make up for it, the overall loss will be less than simply holding.
As for how much money can be made from grid trading if it goes well? Maybe not as much as expected. The main reason is because the invested funds have to be divided into many parts, and the transaction is only done when the conditions are met. The actual transaction amount each time is very low.
Assume that the total investment is 10,000 US dollars, the grid is set to 100 grids, and the funds are divided into 100 parts. The actual transaction amount of each grid is only 100 US dollars, and each grid earns 1%. 1% of 100 US dollars = 1 US dollar, each time Grid trading earns 1 / 10000 = 0.01%. If the grid trades ten times a day and buys and sells 300 times a month, the total profit is 3%. In this example, book profits and losses are not considered, and the annualized return is simply converted to the grid part. The rate is 36%.
Depending on whether the market has a suitable shock trend, the trading pairs selected, the set interval and grid size, the annualized return rate of grid trading will be between a few percent and dozens of percent. If the market is really volatile, It is suitable, and there is a chance that hundreds of percent of the situation will occur. If the book profits and losses are also taken into account, when the market is consistent, when going long and encountering an increase, and going short and encountering a decrease, the profit of the book itself + the grid profit will be More substantial rewards.
Grid trading platform selection
Grid has become a very common trading strategy in cryptocurrency. Many exchanges provide grid trading robots that can be used. There are three main considerations for evaluation:
1. The exchange itself, functions, market, and security
2. Grid handling fees
3. Interface and flexibility of grid trading settings
The most important thing is the exchange itself. Is the overall function easy to use? Is the trading market deep enough? Are assets safe? Whether it is easy to use or not depends on personal subjectivity and trading habits. Each exchange will make adjustments from time to time. It is recommended that you have practical experience with several mainstream exchanges before deciding which one to use in the future.
