In the early days of 2022, Binance announced the launch of a new type of trading strategy available to their users in the form of spot grid trading.
This type of trading effectively enables Binance users to create a trading bot that will automatically make trades depending on the movements of a particular crypto asset’s price.
While grid trading was already available for futures contracts on Binance, the expansion of this functionality in early 2022 allowed users to take advantage of this strategy in the spot markets as well.
It’s important for any advanced crypto trader to understand all of the different strategies available to them when trading on a platform such as Binance, so let’s take a closer look at the pros and cons of this particular trading tool.
What is Grid Trading?
With grid trading, a trader is placing orders both below and above a certain price. The user is effectively building a “grid” of buy and sell orders around a set price on the exchange. The idea is that the trader will be able to make a profit off the normal amount of volatility that will be seen with any asset over a particular internal of time. The buy orders will execute when the price goes down, and the sell orders will be initiated once the price has recovered. This way, the trader is able to earn a profit as the price moves within a particular, expected range.
The main advantage of spot grid trading is that it does not require much input from the trader. A trader does not necessarily need to predict whether the asset in question’s price is going to trend up or down, and there is no input necessary once a bot has been initiated, outside of monitoring the results.
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Spot Grid Trading Strategies
While there is plenty of automation involved with spot grid trading on Binance, the reality is the trades being executed still need to be monitored to make sure losses will not be incurred. A typical strategy used by spot grid traders is to limit the number of orders being placed on the market. For example, a trader may decide that they want to place buy orders at three predetermined levels above the current price of bitcoin. Once the bitcoin price has risen through the three buy orders, the trader can then sell the accumulated bitcoin for a profit.
If a particular market appears to be trading within a specific range, then it makes sense to go against the trend when using spot grid trading. For example, if bitcoin is trading around $40,000 for an extended period of time, then a trader may decide to play buy orders at intervals below $40,000 and sell orders at intervals above $40,000. If the oscillating market persists, then the trader should be able to turn a profit by simply taking advantage of the choppy market conditions. Of course, traders can open themselves up to substantial losses in situations where the trend continues and bitcoin ends up testing a new price level.
What are the Benefits of Grid Trading?
There are a number of potential benefits to look at when it comes to spot grid trading, especially when specifically talking about the crypto markets. The first major benefit to consider is the level of automation involved with this trading strategy. If you’re using a strategy based on profiting from a sideways market, then you’ll want to simply wait for the buy and sell orders to execute automatically without having to track the general trend of the market.
Perhaps the biggest benefit of grid trading is the ability to turn a profit when the markets are being rather quiet. While crypto is known to be one of the most volatile markets in the world, the reality is even the land of bitcoin and ether can get quiet at times. If you’re looking for an edge in times of stagnant market conditions, then grid trading can offer you a potentially profitable trading strategy.
How to Make a Spot Grid Trade on Binance
Whether you’re interested in spot trading or the futures markets, the process of placing a grid trade order is going to be rather similar on Binance and other crypto exchanges. While some trading bots involve downloading extra software on your computer, Binance spot grid trading can be controlled from directly within the Binance app or website. To get started, you will simply need to navigate towards the spot grid trading section of Binance, which is found under the “Strategy Trading” section of the exchange.
Once you are on the proper page, you will need to look at setting five basic parameters for your spot grid trading activities. For starters, you will need to set a lower limit on your trade. This is the lower end of the range in which you would like to make your trades. Next, you will need to set an upper limit on your trades. No trades will be executed outside of this range. As a general rule, it should be noted that your potential for profit will increase as the range between your lower and upper limits expands. Thirdly, you will need to set your grid number, which is the number of buy and sell orders you would like to place evenly throughout your upper and lower limits. The grid number accounts for both your buy and sell orders, so for example, a grid number of eight would equate to four buy orders and four sell orders.
The last two parameters you need to consider are take-profit and stop-loss. Take-profit is the price point at which the spot grid trading bot will exit all positions for a profit. As you may have assumed, the stop-loss parameter is all about preventing a large loss from occurring as a result of your trading strategy. You will be completely exited from your positions when the price hits your stop-loss point. Although, this time the automated activity is about preventing further losses rather than locking in profits. If all of your trades from your spot grid trading strategy do not execute in a timely fashion, then you may want to consider tweaking these parameters on a daily basis.
