1. What is futures grid trading?
Futures grid trading is a strategy that automates the buying and selling of futures contracts. It is designed to place orders in the market at preset intervals within a configured price range. Before getting started, a user only has to set the upper and lower prices of the range and the number of grids. If needed, the user can also set a trigger price so that the grid strategy will start running when the market hits the price. The trading bot will automatically place a grid of orders to buy low and sell high, allowing the user to profit from the volatile market. The futures grid currently supports all USDT-margined perpetual contracts.
2. When to use futures grid trading?
Futures grid trading is all about volatility arbitrage. This is why the strategy performs best in volatile and sideways markets when prices fluctuate in a given range. There are three types of futures grid strategies:1. A long grid only opens long positions and earns profit by closing them when the price increases. It works best in a volatile bull market;2. A short grid only opens short positions and earns profit by closing them when the price drops. It works best in a volatile bear market; 3. A neutral grid opens both short positions above the current market price and long positions below the current market price. Users can choose a strategy type based on the market trend.
3. How do I set up a futures grid trading bot?
(1) Go to the Poloniex website and click "Grid Trading" under "Derivatives".
(2) Set up the bot parameters manually or select the "AI Strategy", then enter the amount of the initial margin to create a trading bot.
(3) You can view and manage the running bots by clicking “Active” at the bottom of the page.
(4) You may stop a running bot at any time.
(1) Log in to the Poloniex app, and tap "Futures Grid" to enter the trading screen.
(2) Set up the bot parameters manually or select "AI Strategy", then enter the amount of the initial margin to create a bot.
(3) You can view and manage the running bots by tapping “Active” at the bottom of the screen.
(4) You may stop a running bot at any time.
3.2 Terms and parameters of grid trading
Two ways to set the parameters of a trading bot
- Manual: Set up the parameters and trigger prices based on your market analysis. You may set the trigger price of your bot so that when the market reaches the trigger price, the bot will start running automatically.
- AI strategy: Use the parameters recommended by AI.
Grid trading parameters
- Lower price: The bot will stop placing orders when the market price is below the lower price.
- Upper price: The bot will stop placing orders when the market price is above the upper price.
- Grid count: Grid count refers to the number of intervals in the price range. For example, if the price range is 100-400, the mode is arithmetic, and the grid count is 3; then there are three intervals in the price range: 100-200, 200-300, and 300-400.
- Leverage: The leverage for trading contracts in the grid. The leverage requirement varies between contracts, and the maximum leverage currently allowed is 100x.
- Initial margin: The total amount of assets invested in the grid strategy, where the free margin refers to the current available margin in the user's futures account.
- Arithmetic grid: Each grid has an equal price difference (e.g., 1, 2, 3, 4...).
- Geometric grid: Each grid has an equal price difference ratio (e.g., 1, 2, 4, 8...).
- Stop top price / Stop bottom price: The grid trading bot will stop running when the market price reaches the predetermined stop top/bottom price. Cancel order / close position on stop: The user can opt to cancel the order or close the position when the grid trading bot stops running.
- Total investment: The total amount of funds available for use with leverage applied. Total investment = Initial margin * Leverage
- (Order parameter) Est. liquidation price: The estimated liquidation price of the user's current positions.
3.3 Example (BTC/USDT futures)
Grid type: Long
Lower price: 50,000 USDT
Upper price: 100,000 USDT
Grid count: 50
Grid mode: Arithmetic
Initial margin: 5,000 USDT
BTC/USDT futures price when the grid is created: 60,100 USDT
Phase 1 - Order placement: The price for each grid at a 1,000 USDT interval will be calculated, which are 50,000, 51,000, 52,000...98,000, 99,000, and 100,000 USDT. Then, buy orders at these prices will be placed with a 2x leverage. In a market with ideal depth, the buy order will be filled at a price higher than the market price, and a corresponding sell order will be placed at a price 1,000 USDT higher. Therefore, creating the grid will result in buy orders being placed at a 1,000 USDT interval between 50,000 USDT and 60,000 USDT, and sell orders at the same interval between 62,000 USDT and 100,000 USDT.
Phase 2 - Grid strategy runs: When the market price drops below 60,000 USDT, then the buy order at 60,000 USDT will be executed and a sell order will be automatically placed at a price 1,000 USDT above that of the executed buy order, which is 61,000 USDT. Similarly, when the market price goes up, a buy order will be placed at a price 1,000 USDT below that of the executed sell order.
As the market rises and falls, orders will be placed and executed within the configured price range, allowing the trader to profit from market volatility.
4.1 A grid strategy will fail if its stop price is already reached when it is being created. In this case, the trader needs to adjust the parameters of the grid. A grid strategy that has been created but not yet triggered can be terminated, or its trigger price can be modified.
4.2 The trigger price of a grid strategy can be changed before it is reached.
4.3 No actions will be taken by the bot when the market price rises above the grid's upper price or drops below the grid's lower price. If the market price remains above or below the grid's price range, the trader's positions may suffer losses or even the risk of liquidation. It is hence recommended that proper stop top/bottom prices be set for the grid to limit losses.
4.4 Funds allocated for a grid will remain in the futures account. When transferring out assets from the account, the trader needs to ensure there are sufficient funds in the account to keep the grid strategy running.
4.5 A grid strategy will be automatically terminated in the event of trading suspensions, delisting of any crypto involved, or other exceptional and unforeseen circumstances.
Risk warning: Grid trading as a strategic tool should not be regarded as any financial or investment advice from Poloniex. Grid trading is used at your discretion and at your own risk. Poloniex will not be liable to you for any loss that might arise from your use of this feature. Users are advised to read and fully understand the grid trading tutorial and trade rationally within their financial ability. Click here for the complete risk warning for strategy trading.