What is Grid Trading ?, Making Money as a Market Maker.

Hello there. In a post I made before, I talked about how the order book is formed and the issue of market making. And I mentioned that there are many ways to earn income as a market maker. Here is one of those methods; Implementing a grid strategy.

Simply put, the Grid strategy means "buy if price falls, sell if price goes up." It can be confused with the scalping strategy. However, the grid strategy is completely different. In the grid strategy, buy and sell orders are entered in advance. If any buy or sell order is made, we will enter a new buy / sell order in front of it. Let's explain how to implement this with an example; 1KG. tomato = $ 1 [] 1KG tomatoes = $ 1.2 2KG. Tomato = 1.8 $ [] 2KG tomato = 2.5 $ 4KG. Tomato = 3.5 $ [] 4KG tomato = 5.5

If you noticed, this order book is an excerpt from the post here. We place orders on how many kilos of tomatoes to buy / sell at how much price in the order book. For example; Suppose we place the orders in the 2nd row. We want to sell our tomatoes at $ 1,375 per kilo. We also want to buy tomatoes at $ 0.9 per kilo. Congratulations! You have created the first grid. This is how we fill the order book. You might think like this; Tomatoes are bought and sold in any market. And the above orders are your buy and sell orders. Our strategy is that simple.

We have certain rules;

• We must have tomatoes and money. We will sell tomatoes to anyone who comes to buy tomatoes. We will buy tomatoes at a cheaper price than we come to sell tomatoes.
• When any purchase-sale transaction takes place, we must place another order across. When some tomatoes are sold, we must enter a tomato purchase order at a cheaper price. When some tomatoes are bought, we have to enter a sell order.
• We need to adjust the earning rates well. It will take us a long time to expect very high earnings. Based on the above order book; If we try to sell our tomatoes for $ 5 a kilo, it will take a long time. Our tomatoes can rot.
• We need to find a market that moves mostly horizontally. If there is a tomato market with constantly increasing prices, it will be difficult for us to make a profit with the grill strategy.
• We must set ourselves a "take profit" "stop loss" goal. If too many tomatoes come to the market or tomato shortage starts, it will be difficult for us to make a profit with this strategy.
• We must trade with low leverage. Or we shouldn't use leverage. Of course, the leverage is forex, futures, etc. very good incomes can be obtained with the grid strategy in the markets. However, if any trend occurs, the situation will become unbearable as we will have too much money / tomatoes left.

I've added a few images below as examples. Examining the images in detail will be useful for your understanding of the strategy. You can find resources on the internet, even if it is limited.

Note: Translation was done using Google translate. Note 2: I do not give investment advice. You should make your investment decisions yourself according to your financial situation and your psychological situation. It would be more beneficial to think of this sharing as an educational work. See you in new posts.