So what are these automated systems? Essentially — automated trading systems are a set of rules that facilitate trading in crypto futures markets.
A good number of crypto traders use automated trading systems. They provide many benefits, including eliminating emotions such as fear, greed and FOMO while trading. In addition, it can save time, as trading is done automatically. This means you don’t have to monitor your trades constantly. A good example of an automated strategy in trading the futures market are Futures Grid Bots. These bots are tools created to execute long and short positions at standard intervals within a predefined price range. This piece will explain what futures trading bots entail, it will also highlight their significant benefits and drawbacks to help you know what to expect in getting started.
Futures Grid Trading Bots
Futures grid trading is an automated trading strategy that involves the systematic buying and selling of Futures contracts. This approach aims to take advantage of price fluctuations within a predefined price range by strategically placing orders at set intervals.
The core concept of grid trading is to create a grid of buy and sell orders above and below a specified reference price. By incrementally adjusting these orders, a trader establishes a structured trading grid. For example, in a BTC futures market, a trader might place buy orders at every 500 USDT below the current market price and corresponding sell orders at every 500 USDT above the market price.
This strategy is particularly effective in volatile and sideways markets, where prices tend to oscillate within a certain range. Capitalizing on these small price movements, grid trading aims to generate profits. It’s important to note that the number of grids used directly impacts the frequency of trades. More grids lead to higher trade frequency, but the profit per order may decrease accordingly.
Ultimately, grid trading involves a tradeoff between generating numerous small profits through frequent trades and pursuing a lower-frequency strategy that aims for larger profits per order. Traders must carefully assess market conditions and risk tolerance to choose the most suitable grid trading approach for their investment objectives.
Using Futures Grid Bots
Using a futures trading bot on a Futures platform is as simple as setting a grid trigger, defining price targets and finally exiting the trade positions. Using the USDT-M Futures BTCUSDT Perpetual contract as an example to understand the process for grid trading, the steps include:
- Setting a Grid Trigger: this is placed immediately when the market price reaches a certain value.
- Defining the initial structure of your grid strategy: Futures traders can as well determine a series of price levels and place limit orders at the most profitable targets.
- Grid Update: Each time a price target is triggered, the grid limit order will update.
- Setting a stop Trigger: just as with any other strategy, traders can manually set a stop Trigger or choose to terminate grid operation or set
- Order Cancellation: after the grid is stopped, you can choose to close all positions manually or automatically.
Benefits of Futures Grid Trading
Crypto Futures grid trading bots automatically enter and exit trade positions. This strategy has been proven to be effective and works well even for those who have just entered the crypto futures market and are learning about it. Here are some benefits of using a grid trading strategy.
Reduces Emotions while trading
One interesting benefit of grid trading is that it takes the human emotion out of trading as it relies mainly on current time information. Trading can evoke emotions like anger, greed and even fear in traders, especially when money is at stake. However, these emotions can be detrimental to manual trading. One solution to this problem is to use grid trading bots, which can execute trades based on a rule-based grid strategy and minimize the impact of emotions in trading.
Grid strategy helps you improve your risk management, an important factor which has elevated significance here. Basically, this type of trading enriches your experience. Trading bots can help you manage your risk by adjusting your investments to match your appetite for risk, making them a valuable tool for improving your risk management skills.
Other advantages of using a grid trading strategy include the following:
- You don’t have to spend time on technical analysis.
- It can be easily automated.
- Crypto futures grid trading can be used with almost any trading pair. Only minor adjustments are sometimes required to make a profit and stop loss.
- New positions are triggered only by the previous closing of a trade.
- Programming bots for automatic trading work relatively better with grid trading.
While Futures Grid trading helps you to understand the complex inner dealings of the market, it also exposes you to risks. Typically, Futures grid trading bots utilize margin trading and have the capability to borrow funds exceeding the trader’s available capital. As a result, traders can execute larger crypto trades but with increased risk exposure.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.