In spot grid trading, the 'return rate per grid' usually refers to the return rate for the 'single grid capital' allocated to each specific grid, rather than the return rate of your 'total investment capital.'
In simple terms: suppose the total investment is 10000 yuan, divided into 10 grids, with approximately 1000 yuan allocated to each grid. If the net return rate per grid is 1%, then each time you complete a full 'buy low, sell high' cycle, the profit you earn in this one grid is about 1000 yuan * 1% = 10 yuan, rather than 1% of 10000 yuan (100 yuan).
1. How to understand the 'composition of returns' in grids?
To fully understand grid returns, you need to know it is composed of several parts:
· Grid profit: The profit successfully cashed out by buying low and selling high, which is the core income of the strategy.
· Floating profit and loss: The unrealized profit and loss of currently held assets that have not been sold compared to the purchase cost.
· Total return = Grid profit + Floating profit and loss. The overall performance of the strategy is measured by the total return ÷ actual investment amount resulting in the total return rate.
II. How is the per grid return calculated?
The per grid return is a theoretical value automatically calculated by the system when setting grid parameters. Its core determining factors are grid spacing and trading costs.
· Simplified understanding of the calculation formula: Net return per grid ≈ Grid price spacing percentage - Transaction fee rate * 2.
· A calculation example:
Assume the grid price spacing is set to 3%, with a buy and sell transaction fee rate of 0.1% each.
Thus, the net return per grid ≈ 3% - (0.1% + 0.1%) = 2.8%.
This means that if the price fluctuates once within a grid you set and triggers a buy and sell, you can achieve a profit approximately equal to 2.8% of the capital allocated to that grid.
Important note:
· When setting up the grid, the platform will require that 'the net return per grid must be greater than 0'; otherwise, the strategy cannot be created. This ensures that each trade triggered has a small profit after deducting costs.
· A 'per grid return' of 2.8% does not equal the strategy's 'annualized return.' The actual annualized return of the strategy depends on the frequency of market fluctuations within the range (i.e., the number of triggered trades).
III. Key comparisons with the Martingale strategy
Understanding the Martingale strategy you mentioned earlier, the core differences between the two can be clearly seen:
· The essence of capital efficiency and risk is different: Grid trading spreads capital across different price levels, simultaneously placing buy and sell orders, waiting for market fluctuations to trigger trades, thus dispersing risk. In contrast, Martingale concentrates capital on 'averaging costs,' significantly amplifying risk in a one-sided market.
· Different profit logic: The grid profits from price fluctuations within the range, performing well in a volatile market. Martingale bets that the price will eventually rebound, which could deplete funds due to frequent 'doubling' even in a volatile market.
IV. Operational suggestions when designing strategies
Based on the above principles, if you want to practice grid trading, you can refer to the following steps:
1. Determine the grid range and spacing: Analyze the historical price fluctuation range of the asset and set a reasonable oscillation range. If the spacing is too small (e.g., 1%), trading will be frequent, and transaction fees will be severely eroded; if the spacing is too large (e.g., 10%), it may not trigger trades.
2. Allocate funds per grid: A common simple method is the 'equal share method,' for example, dividing the total funds for grid trading into 5 or 10 equal parts, as the investment funds for each grid.
3. Focus on the total return: During operation, do not just pay attention to the small profits from single triggers, but focus on the 'total return' or 'annualized return' displayed in the strategy backend, as this is the indicator for measuring the overall effectiveness of the strategy.
In summary, you can think of the 'per grid return' as the strategy's 'single trade gross profit margin,' while the final investment return depends on the interplay between this single gross profit margin and the market fluctuation frequency.
If you want to learn more, such as how to set the initial grid range and spacing for a specific asset (like a certain cryptocurrency or ETF), I can provide some ideas.