What is Grid Trading?

A grid trading strategy makes use of market fluctuations so you can profit from them. Here’s how a grid trading bot can execute it, time and time again.

  1. 9 Reasons to use a Grid Trading Bot

  2. Are there any risks with using a grid bot?

  3. Key things to be aware of before using a grid bot


The grid trading strategy is best suited to a ranging sideways market with no clear direction, and a grid bot is a software that helps you to execute it. 

It is designed to make money from market price fluctuations and is most effective when there isn’t any clear upward or downward trend over a long period. When price fluctuations are bigger and happen more often, the strategy will return greater profits.

A grid strategy gets its name from the grid-like arrangement of buy and sell orders with a predefined price range that you set up or schedule in advance. 

To begin with, you’re going to pick a price range for the strategy and then set the number of ‘grids’ you want to have within it. You divide the price range into smaller ranges to boost the chances of trades being triggered.

The more grids you include, the greater the frequency of trades will be since the width of the grid is decreased, although, the profit you make from each order is lower also. So it’s a choice between having lots of trades, each one of which makes you a small profit, or not so many trades, each one of which makes you a bigger profit. 

Each time a buy order triggers, a new sell order will be placed that’s bigger than the buy. Each time a sell order is triggered, a new buy order will be placed that’s smaller than the sell. The upshot of this is that every time the price fluctuates between a pair of grids it executes a trade that earns you a small amount of profit.

So, as you can see, if the price stays inside the predetermined range, the strategy sells when the price goes up and buys when it drops, so it’s just small amounts that pick up a little profit each time, but they soon add up!

9 Reasons to use a Grid Trading Bot

1. Grid trading is ideal for the Crypto Market

Grid Trading has been around a long time, so it’s a thoroughly ‘road tested’ approach. It’s been used on many occasions to generate profits for canny traders, and it's been found to be particularly useful in crypto trading as it is so well suited to the rapid shifts in pricing that we often see in that market.

2. Grid strategy suits crypto-traders

Grid strategy doesn’t use algorithms, indicators, or complex market signals, so that makes it easy to understand, even for those traders with little experience, who should be able to set themselves up for grid trading in no time.

3. Grid trading is versatile

It’s a strategy that’s based entirely on the simplest idea in trading (buy cheap, sell for more and pocket the difference), so it can earn a profit in almost any market, no matter what the trend is or the market behavior. 

It’s also versatile in that you get to choose the price range and how many grids there are, so you’re in control of the grid strategy’s period and frequency. 

You can set it up to make hundreds of small trades an hour to pick up small profits from the tiny peaks and troughs that happen every day. Conversely, you can set it up to profit over the long term from fewer and greater price shifts. 

4. Liquidity Provider

Grid trading is perfectly suited to market-making because it encourages liquidity and by doing so it creates greater trading volume for you if that’s what you decide to set it up for. 

Even though the majority of grid traders don't think about this, it can also help with illiquid markets that have thin order books. Such markets often suffer from huge spikes (6% up, then 8% down, etc.) that happen one after the other. It’s easy to take advantage of these spikes by providing liquidity with a grid trading bot to transform them into a tidy profit. As well as that, it also helps the exchange you are trading on. It’s going to aid anybody who wants to trade with an illiquid pair because it helps them to do so at an honest price.

5. Boost Your Risk Management

The settings you adopt for your grid strategy make a big difference to how successful it’s going to be and you take an even more active role in influencing the risk/reward level.

You can use a grid bot to earn small and steady profits with nearly no risks (for instance: by choosing a stablecoin pair like USDT/BUSD), or if you fancy a bigger risk with the prospect of a bigger return (such as with a low market cap coin that’s seeing high volatility). 

On Pionex, you can use their “Leveraged grid bot" or "Margin grid bot" to easily multiply your PnL on big pairs. These specialized grid bots let you manage your risk and amplify your profits/losses. 

It’s really useful if you’re happy to trade with trustworthy assets like BTC and get better results faster, which you’d normally only be able to do by trading small market cap coins.

6. Among the most successful strategies for a ranging sideways market

The majority of trading strategies tend to look at predicting a trend correctly and trading accordingly, so they might say something like, “If this EMA crosses that, while this indicator is showing this, then the price will probably rise.”

Usually, the market won’t show a clear trend, or the trend goes the wrong way compared to what the strategy calls for, so any traders using it have to wait it out and stay mostly flat.

Something else to stay aware of is that because their trades are betting on predictions, there’s a good chance that they are going to lose their bet and take a loss. 

But with a grid trading strategy, you don't need to wait for the perfect opportunity to “predict” the next move. If the Price heads down you buy cheap and then cheaper still, and if it heads upwards you sell high, and then higher still, and if it doesn’t move you buy and sell, time and again, all the while taking money from small shifts in price until a trend becomes apparent.

So, grid trading will make money from any price movement, no matter which direction it goes (so long as it doesn't go beyond your range in the down direction and never come back up again). 

Most other strategies miss out on most opportunities and might even lose out if they predict wrong.

7. Never ALL-IN: dollar-cost averaging tactic

Grid trading makes sure that you never miss a chance to buy low or sell high. If you set up a broad range to play over a longer period, you get the guarantee of a good average price in either case.

8. Diversification

This is trading 101: always spread your investments around, don’t put all your eggs in one basket. So, if you are holding two assets long-term that can be exchanged with each other, grid trading lets you earn more from the fluctuations between them.

9. Automation

Grid trading takes a logical approach based on market behavior, so automating it is a no-brainer. Enter the grid trading bot, a piece of software that follows the strategy with minimal intervention. Some trading strategies that use bots still need the trader to pay attention from time to time, but a grid strategy doesn’t require that. A grid bot can automate trading without you having to worry about it. 

Are there any risks with using a grid bot?

Grid Trading isn’t foolproof. There are risks with every trading strategy, and although grid trading has fewer risks than most, you do need to be aware of what they are when you use a grid trading bot.

1. If the price keeps heading down with no sign of a rebound (this happens a lot with small market cap coins) even the brightest grid bot will fail.

2. Using a grid bot with BTC/USDT in 2017 when BTC was at 18k would have made you a profit, but overall you would still have lost.

3. If you fail to manage your buy and sell transactions in a volatile market, or you don’t have stop-limit orders in place for market triggers, then you have no failsafe for when things go wrong.

4. You can’t blame a grid bot if it loses you money because it does what you told it to. Things go wrong, so features that Pionex’s (for instance) grid bot provides like trigger price, stop loss, and take profit features should be on your essentials list before you choose one.

5. Never gamble with more than you can afford to lose. That’s one of the golden mantras of trading. It’s best to start with modest trades while you find your feet or when you use any new instrument. Only increase the size of your trades when you feel confident in the grid bot.

You will be learning from experience as you do more grid trading, picking up invaluable lessons on different assets and situations. In time you could find that this is your most trustworthy trading strategy.

Key things to be aware of before using a grid bot

After more than 18 months of use we’ve learned a few bits of wisdom about grid bot trading that are worth sharing:

Fees are an important consideration as they always impact your trading profits. Exchanges with low fees, that whole occasional zero-fee events, or offer fee rebates that you can get as a market-maker, have a big impact on your grid trading.

Find the best pairs and market conditions you can and learn how to read the market, pour over charts, and develop a sense of what you need to look for. 

Look for charts with a sideways or slight uptrend, but do be sure that you don’t see any suggestions for a long-term downtrend. 

Look for a pair that has previously had some frequent and hefty price movements, but which also looks like it won’t leave your price range soon.