Grid trading is an automated method that places buy or sell orders at several price levels in a predefined price range and executes them when the price hits the level. Each level is represented here as a grid.
To attempt to profit from short-term market volatility, this instrument is often employed in sophisticated trading systems that are frequently used for stock markets.
Risk Reminder and Notes:
- During extreme market conditions, if the asset price continuously drops below the lower bound you established during volatile markets and never rises again, you may experience a loss of up to all assets committed to the Grid Trading. Furthermore, if you rely exclusively on the automatic tool without carefully watching the volatility, you run the danger of missing chances to prevent a loss or make a profit if the price falls further below or rises above the range due to your pre-set instructions.
- The assets committed in the Grid Trading will be isolated from your account and put under the status of “on hold”. The assets are used independently for the Grid Trading. Therefore, users need to pay attention to the risk of overall positions in your account portfolio after committing assets to Grid Trading.
- While the Grid Trading is running, if an unpredictable circumstance arises such as the suspension or delisting of the underlying crypto asset, the Grid Trading in the affected crypto asset(s) will be automatically stopped.
- You may cancel the Grid Trading anytime, however, you will have to manually liquidate any assets previously purchased by you through the Grid Trading function.
"Buy low and sell high" is the fundamental principle of Grid Trading. The system will execute purchase orders at a lower price level and sell orders at a higher price in order to achieve this.
The pricing range (higher and lower price) and the total number of orders may be defined by users (grids). There will be no purchase orders on the highest price, and no sell orders on the lowest price, since the system will then compute the difference between each grid and place orders on each price grid in turn.
A trader initially creates his starting reference price in grid trading, which is the Price Range (Upper Price and Lower Price). The grid then sets many buy orders simultaneously below this reference price at different (often even) levels. Then, sell orders are coupled with each buy order and are priced higher than the buy order pricing.
The Upper and Lower prices on the grid are often determined using the recent historical price range, or the difference between the most recent high and low prices on the market for a certain time period. Thus, the parameters largely depend on the currency pair's historical volatility.
The system will calculate equal distant grids between the upper price and lower price based on the Grid Quantity set by the trader. The system will continue to populate buy orders at each grid up until the upper price but never places a buy order at the upper price, whenever a buy order becomes filled, the system automatically populates a sell order starting from the upper price. As buy orders become filled, more sell orders will be placed all the way down to the lower price but never places a sell order at the lower price. For Grid Trading sell orders, this process is reversed. If this is confusing, then please continue to our example below for a real-world example.
Upper Price: The highest price in the Grid Trading price range. When the market price is greater than the Upper Price, the system will no longer execute orders.
Lower Price: The lowest price in the Grid Trading price range. When the market price is lower than the Lower Price, the system will no longer execute orders.
Grid Quantity: Quantity you want to set up to divide the interval's upper limit price and lower limit price into equal portions.
Initial Deposit: The amount of money you are ready to commit to this particular Grid Trading. While your Grid Trading is ongoing, the funds committed will be on hold.
Amount Per Grid will be calculated based on Grid Quantity and Initial Deposit. In this case, it will be 0.064724 ETH.
Grid Trading Buy:
Grid Trading Sell:
Let’s say you wish to create a Grid Trading buy order and you wish to commit $1,000 CAD. Also, let’s assume you want to trade the ETH/CAD trading pair and would like to have a total of 10 grids with the lower price being $1,500 and the upper price being $1,600. In this example, once the order has been submitted, our system will automatically create 10 limit buy orders for 0.064724 ETH at equal intervals starting from $1,500 and going upwards in increments of $10 until $1,590.
Limit Buy Orders will be placed at the following price points:
In our example, the total assets at risk is $1,000 CAD. Since there are a total of 10 orders and each limit buy order is for the purchase of 0.064724 ETH at each price point, this sums up to be $1,000 CAD in total value. As buy orders are filled, a limit sell order will be created by the system automatically starting at the $1,600 price point and will go down to $1,510. One limit sell order will be created for each limit buy order filled. Each limit sell order will be for 0.064724 ETH.
Limit Sell Orders will be placed at the following price points:
Assume that all limit buy orders are filled and subsequently, the market bounces back up and all limit sell orders are also filled. In this optimal situation, the trader will earn a profit of $6.4724 CAD. As each limit sell order is filled, a limit buy order will be created again starting from $1,500. This loop could theoretically go on indefinitely. Please note that if prices drops below the Lower Price point and never rebounds then the trader stands to suffer a capital loss. Likewise, if the price rises above the Upper Price point and never comes back down again, then the trader loses out on the opportunity to have earned a more substantial capital gain.
Please note that if some limit buy orders are above the current market price, the order will be executed at market price. This will result in the trader purchasing crypto assets at a lower price and therefore, less fiat currency will be used when compared to if the purchases occurred at the price of each grid. This will result in excess fiat assets for the trader. In order to access the excess fiat assets, the Grid Trading order must be first cancelled to remove the “on hold” status of the assets.
You may terminate a Grid Trading order at any time.
To see your current open orders and executed orders for your Grid Trading, click "View Details."
Additionally, you may click "Stop" to end Grid Trading. After you terminate your Grid Trading, assets in your current holding will be returned to your account.
Automatic Cancellation Policy
Your order can get automatically cancelled if,
- When VirgoCX delists any crypto asset, all open orders of the crypto asset will be terminated. You will receive a separate electronic message announcing the termination.
- When VirgoCX suspend the trading function of any trading pair, all open orders for the trading pair will be terminated. You will receive separate electronic messages for the termination.