Many traders hear about a 'Neutral Bot' or 'Grid Bot' without knowing the difference between the geometric and arithmetic, and they are actually two types of the way to distribute grid orders (grid levels).
Let me explain it to you simply and accurately:
⚙️ First: What is a Neutral Grid Bot?
It is an automated trading bot that distributes buy and sell orders around a certain price (the current price), aiming to profit from price fluctuations up and down within a defined range.
🔸 Neutral = does not depend on market direction (benefits from fluctuations in both directions).
📏 The fundamental difference between 'geometric' and 'arithmetic'
The difference in the way grid levels are distributed between the highest price and the lowest.
🧮 1.
Arithmetic Neutral Bot (Arithmetic Grid)
Distributes levels evenly across the price range (fixed).
The difference between each price level and another is fixed in value, such as $10 or $0.5.
Example:
If you set the range from 100 to 200 dollars, and the number of grids = 5
So the arithmetic distribution is:
100 – 120 – 140 – 160 – 180 – 200
(The difference = $20 between each level).
✅ Result:
Simple and understandable movement.
Suitable for pairs with stable volatility or relatively stable prices.
Each trade is close in size and yield.
⚠️ Disadvantage:
Does not consider the percentage change, so if the price is very low or very high, the distances may not be balanced in terms of percentage.
📈 2.
Geometric Neutral Bot (Geometric Grid)
Distributes levels by a fixed percentage (i.e., the distance gradually increases).
Each level is a certain percentage away from another (for example, 2% or 5%).
Example:
Same range of $100 to $200, and number of grids = 5
The ratio = approximately 20%
So the geometric distribution is:
100 – 120 – 144 – 173 – 207
(Each level is higher than the previous one by a fixed percentage, not a fixed difference).
✅ Result:
The difference adapts to the price (distances widen as the price rises).
Suitable for high volatility or long-term assets like BTC and ETH.
Maintains a balance of profit percentage in each trade.
⚠️ Disadvantage:
The distances at the peaks are very large compared to the bottom → less activity in the upper part of the range
