Grid trading is a type of trading that attempts to take advantage of natural market moves in different directions. There are different trading styles within the concept of grid trading and we will explore these further in this article. Essentially, a grid trader buys a currency pair at one price and then sells it at a higher price, in order to take advantage of a rising market. However, instead of placing one single buy order, the trader can place several buy orders at different price points. When exiting the position, the trader will place several sell orders at different levels. When all these orders are displayed on a chart, they look like a grid, hence the name.
There are common myths about grid trading:
Grid trading can result in large positions
You need to use high leverage
You have to pay a lot in fees
Most strategies result in an overall loss
These statements can be off-putting to traders. The reality is that when grid trading is done correctly, it can be a very profitable strategy. It is important to note that most hedge funds and market makers use a form of grid trading to enter and exit positions and create liquidity on exchanges.
Grid trading strategies are ideal for volatile markets such as FX and crypto. In a typical crypto trading day, the markets can move up or down by 10%. These moves create trading opportunities. There are different types of grids for different market conditions. The main benefit is you don’t need to predict whether the market is going up or down.