Recently, Gate Future Grid has added a neutral grid on the basis of long and short grid, and users can set it according to the expected price trend. If the user feels that the price of the crypto is rising, he can set a long future grid, and if he thinks it is falling, he can set a short future grid. If he is not sure about the direction of the crypto price and only feels that the market will continue to fluctuate, he can set a neutral grid. So what exactly is a neutral grid? This article will introduce neutral grid in detail, aiming to help users get started with new features faster.
Principle of Neutral Grid
From the perspective of purpose, the main purpose of neutral grid trading is to "hedge investment risks, realize arbitrage, and stabilize returns," which is suitable for use when the market is volatile and the price trend unknown. It is to create a buy and sell order with a grid but without position, usually open/close short above the market price when the strategy runs, and open/close long below the market price. Users do not need to preset price fluctuations, the system will automatically place short or long orders according to the real-time price to arbitrage by buying and selling. If it falls, neutral grid will automatically go long in batches, and if it rises, it will go short in batches. It is a model used to make easy money, with low risk.
However, the neutral grid also has its disadvantages. The essence of the neutral grid is counter-trend trading, that is, buying at low prices and selling at high prices, which will cause users to buy bottoms or sell on the middle of the price, that is, when the market is in a unilateral market, the neutral grid will lose money. But it needs to be emphasized that users don’t need to be afraid of floating losses. If the market enters a unilateral downtrend, neutral grid will keep buying bottoms for you, reducing your costs, and then make a profit with only a small rebound. At the same time, due to market fluctuations, floating losses will be smoothed out by grid arbitrage. Therefore, during reasonable range, the unilateral market may actually become a profitable market in the end.
Neutral Grid vs Long & Short Grid
There is one important difference between a neutral grid and a long and short grid. Take the long grid as an example. After the long grid is successfully opened, it will buy a lot of long orders at the position of the pending order, establish the bottom position, and then start buying or selling in batches like the neutral grid. The neutral grid will not keep a bottom position, so what the long grid earns is the profit of the position, the arbitrage is only an auxiliary hedging; while the neutral grid earns the profit of the grid arbitrage. Of course, if your market judgment is correct, the profit of long grid will be much more than that of neutral grid, which can increase positions flexibly and reduce costs, while short grid can only go short, whose rule is opposite to the long grid. However, when you make a wrong market judgment or it is difficult to distinguish the market trend, the neutral grid is a safer choice.
When to use Neutral Grid?
Usually users will open the neutral grid when the market is volatile or unclear, in order to realize arbitrage. As we all know, the long grid will only open and close long, which is suitable for the volatile upward market, which means that if the market drops sharply, it will be at a loss because it will continue to buy, reducing your holding cost. While short grids can only open and close short, which is suitable for the market that fluctuates downwards. If the market rises sharply, it will lose money.
Therefore, users need to have an accurate prediction of the market. When predicting that the market will fall in the future, they can choose to short the grid. Short grid will help you clear part of the current cryptos, that is, sell it when the real-time price is high and wait for the price to fall before helping you buy. That is, selling high and buying low to earn the price difference. And when the user predicts that the market will rise in the future, he can choose to go for the long grid. Long grids will help you buy cryptos, that is, buy it when the real-time price is low, and sell it for you when the price rises. That is, buying low and selling high to make a profit.
It can be seen that long and short grids are used when users have a certain judgment on the future market trend. So when the user cannot predict the price trend, how do you choose the grid direction? This is where neutral grids come in handy. In short, the neutral grid combines the advantages of long and short grid, while hedging the risks brought about by these two strategies. Due to the ups and downs of cryptocurrencies, it is difficult to judge where to start. Investors sometimes make mistakes in market judgments, resulting in losses. The neutral strategy allows investors to go long and short after the future price occurs, reducing the risk of loss caused by market misjudgment, and then achieving stable returns.
An Example
Suppose you hold 1000 BTCS and the price range is set at 5000-10000 with a grid of 1000. Also, the price is $8000 when the strategy runs. Let's say that if the price rises for every 1 range, 100 coins are sold; and if the price falls for every 1 range, 100 coins are bought.
Therefore, when the price rises to 9000, 100 coins are sold, with 900 coins remaining. When the price falls to 8000, it will buy 100 coins, with 1000 coins held.
Summary
The crypto market comes with ups and downs. In the past two years, due to the influence of various internal and external factors, it has become increasingly treacherous. Market prediction and trend judgment have become problems for most investors, and many experienced investors have failed to gain a firm foothold and suffered frequent losses. Then the neutral grid came into being, which combines the characteristics of long and short strategies, and at the same time hedges the risks brought by these two strategies to maximize profits for investors, which is a sharp weapon to deal with volatile market conditions.
Gate reserves the final right to interpret the product.
