Margin grid is a trading strategy that blends the automated efficiency of grid bot with the leverage of margin trading. By using borrowed amount, traders can amplify their trading capacity, potentially enhancing profits while also increasing exposure to risk. In grid bot trading, buy and sell orders are automatically executed within a predefined price range, aiming to capitalize on market fluctuations. When combined with margin trading, traders can leverage their positions—up to 3x—enhancing potential returns. However, this approach also introduces significant risks that require careful management.
What are the benefits of margin grid?
Grid bot trading on a margin offers several potential advantages:
What are the risks associated with margin grid?
While the rewards can be substantial, it's crucial to understand and manage the risks:
Increased Losses: Leverage can magnify losses as well as profits. If the market moves against your position, losses can be significant.
Market Volatility: Rapid price movements can lead to unexpected losses, especially if the grid bot's parameters are not well-tuned to current market conditions.
Margin Calls and Liquidation: Falling below required margin levels can trigger margin calls and force the liquidation of positions, potentially resulting in significant losses.
Margin Costs: Borrowed amount incur margin costs, which can accumulate over time and reduce overall profitability.
When is the best time for using margin grid?
Long: When you expect the price to fluctuate and eventually go up.
Short: When you expect the price to fluctuate and eventually go down.
Neutral: When you expect the price to fluctuate within a range.
Learn more about grid bot strategies here to better understand how different directions work and associated price risks.
Who is eligible for margin grid?
To use margin grid trading, you need to pass the assessment test of margin trading to ensure you understand the associated risks and mechanisms.
Common use cases for grid trading
Tight Grid Interval and Enhanced Leverage: For frequent trading profits. However, risk is higher when the market direction is unfavorable.
Geometry Grid and Large Grid Interval: For a long-term strategy, waiting for the grid to auto trade.
Harvest Profit (in planning): Allows users to withdraw profit from the grid bot to increase capital efficiency.
Fees and margin cost
Fees: 0.05% for all kinds of grid trading.
Margin Cost: Same as margin trading.
For more information on margin costs, please refer to fees, limits, and margin cost.
Supported trading pairs and margin levels
Pair | Leverage | Warning ratio | Margin Call ratio | Liquidation ratio |
BTC/USDT | 1-3x | 130% | 120% | 110% |
ETH/USDT | 1-3x | 130% | 120% | 110% |
SOL/USDT | 1-3x | 130% | 120% | 110% |
XRP/USDT | 1-3x | 130% | 120% | 110% |
BNB/USDT | 1-3x | 135% | 125% | 115% |
LINK/USDT | 1-3x | 130% | 125% | 115% |
MATIC/USDT | 1-3x | 130% | 125% | 115% |
Price risk
Extreme price movements in the unfavorable direction are the main reasons for loss or liquidation:
Long: When the price drops substantially.
Short: When the price rises substantially.
Neutral: When the price moves outside the predetermined range.
What happens during a margin call and when is liquidation initiated?
If market conditions cause your position to fall below the required margin level, you'll receive a margin call, urging immediate action to stabilize your account. If no response is made and conditions worsen, reaching the liquidation ratio, your positions will be liquidated.
What are margin calls?
A margin call happens when your account equity falls below the required margin level. Key points to know:
Initial Margin Requirement: How much equity you need to open a margin position.
Maintenance Margin Requirement: The minimum equity to keep positions open.
Margin Call Notification: A warning to deposit more amount or close positions.
Actions to Take: Add amount or reduce positions to meet margin requirements.
What is liquidation?
Liquidation occurs if you don't address a margin call or if market conditions worsen. Key points to understand:
Liquidation Ratio: The equity level triggering automatic position closure.
Automatic Position Closure: Positions are closed to prevent further losses.
Impact on Your Account: Can lead to significant equity reduction or negative balance.
Why are there two liquidation prices displayed for a neutral direction?
In a neutral direction strategy, two liquidation prices are displayed because no initial position is set after the bot is created. Each liquidation price represents the threshold at which your position may be closed to prevent further losses. These liquidation prices remain grayed out until a position is actually taken. Once a position is entered, the corresponding liquidation price activates to reflect the risk associated with the new market position.
How can you prevent margin calls and liquidation?
Monitor Your Positions: Regularly check account balance and margin levels.
Set Stop-Loss Orders: Automatically close positions to limit losses.
Maintain Adequate Equity: Keep enough amount to cover potential losses.
Adjust Leverage: Use lower leverage to reduce risk.
Why is the initial unmatched profit/total profit negative?
The initial unmatched profit or total profit is negative when opening a margin grid position due to the trading fees and margin costs incurred. These initial expenses represent the upfront costs associated with establishing a margin grid position.
Understanding grid bot directions
Grid bots employ different strategies to maximize trading efficiency by setting up grids within predefined price ranges. These strategies are known as directions and are tailored to different market conditions.
What is long direction in grid bots?
In the long direction, grid bots are configured to profit from an upward trend in prices. The strategy involves placing a series of buy orders at lower prices and sell orders at higher prices within a set range. This direction is particularly effective in bullish markets. However, there is a price risk involved: if the market price drops substantially, it can lead to losses or even liquidation.
What is short direction in grid bots?
The short direction strategy is used when the market is expected to decline. Here, the grid bot places sell orders at higher prices and buy orders at lower prices. The goal is to capitalize on falling prices by selling high and buying back lower. The primary risk in this strategy is a sudden increase in prices, which can lead to losses or liquidation.
What is neutral direction in grid bots?
The neutral direction strategy is used when the market direction is uncertain or expected to be stable. This strategy involves setting both buy and sell orders within a predefined price range, aiming to profit from minor price fluctuations. The primary price risk in a neutral strategy occurs when there is significant movement either upwards or downwards, especially if the price moves out of the bot's designated range. This can complicate management of the positions and increase the potential for losses.
What is some information I should know about before opening a position?
For a deeper dive into setting up a grid bot, check out our article on how to create a grid bot? For more in-depth information on margin trading, check out our guide on What is margin trading? To learn more about grid bots, see our frequently asked questions on What is a Grid bot?