Guide to Neutral Grid Trading on Bitget

To thank our users for their continued support, the Bitget team has upgraded spot grid and futures grid trading in response to the volatile conditions of the current market. As part of the upgrade, we will be launching neutral grid bots.

Neutral grid trading is designed to reduce the need for traders to rely solely on the direction of crypto prices when making trades. With neutral grid trading, you can make profits irrespective of the market direction. If you anticipate an increase in price, you can implement a long grid strategy. Conversely, if you expect a decline in price, you can implement a short grid strategy. And in situations where the price direction is uncertain and fluctuations are expected to persist, you can opt for a neutral grid strategy. So, what exactly is neutral grid trading? In this guide, we will give a comprehensive introduction to neutral grid trading, with the goal of helping users quickly grasp and utilize this new feature effectively.

How Neutral Grid Trading Works

Neutral grid trading aims to hedge investment risks, realize arbitrage, and generate stable returns. It is effective in volatile markets when price trends are unpredictable. This trading strategy involves placing buy and sell orders using a grid system without actually taking any positions. When implementing this strategy, short orders are executed above the market price while long orders are executed below the market price. Traders are not required to predict price movements, as the system automatically executes long or short orders based on real-time prices, which achieves arbitrage through simultaneous buying and selling. The strategy opens batched buy orders if the price falls, or batched sell orders if the price rises. This user-friendly strategy allows traders to profit from market fluctuations and can even be used for low-risk short-term trading.

However, it is important to understand the limitations of neutral grid trading. This approach, which is a form of left-hand trading, essentially involves buying low and selling high. However, there may be instances where the market continues to rise after breaking through resistance or continues to decline after a sharp fall in prices. As a result, users may end up buying near the peak or selling near the bottom, leading to unrealized losses as the market clearly trends toward a particular direction. Nevertheless, users should not be afraid of floating losses. In a scenario where the market enters a sustained downward trend, neutral grid trading will continuously average down your buying price, helping to reduce your overall costs. Even a slight rebound can bring you into the profit zone.

Neutral Grid Trading vs Long/Short Grid Trading

There is a key difference between neutral grid trading and long/short grid trading. Let's use long grid trading as an example. Once the long grid strategy is executed, it will buy multiple long positions at a specified price level to build a base position. Just like neutral grid trading, long grid trading buys incrementally and sells in batches. However, unlike neutral grid trading, long grid trading maintains a base position and derives profits primarily from holding these positions, with arbitrage acting as a supplementary hedge. On the other hand, neutral grid trading derives its profits from the earnings generated through grid arbitrage. If your market assessment proves accurate, long grid trading can generate significantly higher profits compared to neutral grid trading. It allows traders to increase their positions flexibly while reducing overall costs. Conversely, short grid trading involves trading short positions, and works the opposite of long grid trading. As such, neutral grid trading is a prudent option in situations where there is a likelihood of misjudgments or difficulty in assessing the market situation.

When to Utilize Neutral Grid Trading

Neutral grid trading is commonly employed by traders to capitalize on arbitrage opportunities during market volatility and uncertainty. It is commonly known that long grid trading involves opening and closing long positions, which is suitable for an upward-trending market. However, long grid trading will lead to losses if the market plunges suddenly as it continues to open positions to lower the average holding cost. On the other hand, short grid trading involves opening and closing short positions, which is suitable for a downward-trending market. However, short grid trading will result in losses if the market rises rapidly.

As such, traders need to be able to accurately predict the market. When the market is predicted to decline in the future, one can opt for short grid trading. This strategy liquidates a portion of your existing holdings by selling high and buys back when the price falls, allowing traders to profit from the price difference. Conversely, if the market is predicted to rise in the future, one can opt for the long grid strategy. This strategy generates profits from buying low and selling when the price rises.

We can see that both long and short grid trading are suited for traders capable of making accurate judgments on the market. However, for traders who are unable to predict price movements, neutral grid trading comes in handy. In short, neutral grid trading combines the strengths of both long and short grid trading while mitigating the associated risks. Given the volatile nature of cryptocurrencies, it is hard to determine the ideal entry point, and traders may sometimes misjudge the market and incur losses. Neutral grid trading allows traders to take long or short positions after the price movements have occurred, reducing the risk of losses caused by misjudging the market, thus achieving stable returns.

Example

Here's an example to illustrate how neutral grid trading works. Suppose you currently hold 1000 BTC, with the price range set between US$5000–US$10000 and a grid interval of US$1000. Your bot was executed at the price of US$8000. For every 1 interval increase in price, 100 BTC is sold, and for every 1 interval decrease, 100 BTC is bought.
So when the price of BTC rises to US$9000, the bot would sell 100 BTC, leaving you with 900 BTC. Conversely, when the price of BTC falls to US$8000, the strategy would buy 100 BTC, bringing your holdings to 1000 BTC.

Conclusion

The cryptocurrency market is known for being unpredictable, making it challenging for investors to predict market trends accurately. Even experienced investors struggle to navigate the market and often face losses. In such situations, neutral grid trading comes into play by combining the strengths of both long and short strategies while mitigating the risks associated with them. In all, neutral grid trading is a powerful tool to maximize profits and manage market volatility effectively.

Disclaimer

Neutral grid bots are trading tools. The abovementioned information should not be considered financial or investment advice from Bitget. Your use of this tool is subject to your unconditional acceptance of all of Bitget's Terms and Conditions. You should be fully aware of the risks associated with cryptocurrency investments and proceed with caution. You agree that all investments on Bitget.com reflect your true investment intent, and you unconditionally accept the potential risks and gains of your investment decisions.