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What Is Grid Trading?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 November 2016
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Grid trading is a type of investment strategy that is employed by investors in a currency exchange or Forex market. Using this particular approach calls for creating a series of buying and selling activities that can occur on an automated basis, allowing the investor to take advantage of the constant change that takes place with currency trading. Typically, grid trading can be structured to occur without the need to work closely with a broker to execute individual orders as the means of generating profit from the market.

The core process of grid trading focuses on the establishment of a series of buys and sells that can automatically occur when pricing on selected currencies are within a given range at a given point of time. Typically, the orders will trigger based on whether price is a little more or a little less than the pricing used as a benchmark, and must take place at or near a stated time. The goal with grid trading is not to make a huge amount of profit at one time, but to incrementally generate small gains that are occasionally offset with some minor losses, overall achieving a net gain that the investor feels is sufficient for the time and effort involved.

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One of the main benefits of grid trading is that constant monitoring of the shifts occurring in the Forex market is not necessary. This is in contrast to other strategies that call for the investor to be constantly aware of what is happening, and executing orders through a dealer based on what he or she sees as an emerging trend. Since the parameters are determined with the grid trading approach, there is no need for this monitoring. If the right set of circumstances occur, the orders are executed in the defined sequence and hopefully result in profit for the investor.

There is also a potential downside to grid trading that must be considered. The amount of effort required on the front end to identify the price and time ranges for the strategy, as well as determining the series of buys and sells that must occur in a defined sequence can be considerable. In addition, the creation of a grid trading strategy that is flawed in some manner can result in a loss. For this reason, using this approach requires making sure the information utilized is accurate and verifiable is extremely important to the success of the process.

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