Grid Trading Drawdown Explained
Why a grid's floating loss grows faster the further price moves, how to compute it at any distance, why balance and equity tell different stories, and how grids are stopped before the tail.
By the AURAX teamPublished 4 min read
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A grid's drawdown is the floating loss of its open basket: every open position times the distance price has moved past its entry. Because the grid keeps adding positions as price moves away, the loss grows faster than the move — roughly with the square of the distance for equal lots, and much faster with a multiplier. That is why a grid can sit at a small drawdown for weeks and then lose a large share of the account in one move.
floating loss at distance D = Σ lotᵢ × (D − dᵢ) × contract size
- over every level i that has opened, i.e. dᵢ ≤ D
- dᵢ = distance of level i from the first entry, in dollars of price
- contract size = 100 oz per lot on most gold contracts
Part of the Grid trading guide.
The curve for equal lots
Take 0.10 lot every $5, up to ten levels. Each level adds $10 per dollar of move ($5 × 100 oz × 0.10), and each new position arrives when the earlier ones are already under water:
| Price moved | Levels open | Floating loss |
|---|---|---|
| $5 | 2 | $50 |
| $10 | 3 | $150 |
| $20 | 5 | $500 |
| $30 | 7 | $1,050 |
| $45 | 10 | $2,250 |
| $60 | 10 | $3,750 |
Double the distance from $10 to $20 and the loss more than triples; from $20 to $45, it rises more than fourfold. Once all ten levels are open, the grid is simply 1 lot losing $100 per further dollar.
The curve with a multiplier
With lots doubling at each level, most of the loss arrives at the end. The table below is 0.01 lot, ×2, $5 apart, eight levels:
| Level | Lots | Relative size | Price moved | Lots open | Floating loss as it opens |
|---|---|---|---|---|---|
| 1 | 0.01 | $0.00 | 0.01 | — | |
| 2 | 0.02 | $5.00 | 0.03 | −$5 | |
| 3 | 0.04 | $10.00 | 0.07 | −$20 | |
| 4 | 0.08 | $15.00 | 0.15 | −$55 | |
| 5 | 0.16 | $20.00 | 0.31 | −$130 | |
| 6 | 0.32 | $25.00 | 0.63 | −$285 | |
| 7 | 0.64 | $30.00 | 1.27 | −$600 | |
| 8 | 1.28 | $35.00 | 2.55 | −$1,235 |
The first $20 of the move costs $130. The next $15 cost another $1,105 — and every dollar after the last level costs $255, so a $50 move is a $5,060 loss.
Balance and equity tell different stories
Balance changes only when positions close. Equity is balance plus the floating result of open positions. A grid closes its winning baskets and holds its losing one open, so its balance rises steadily while its equity dips — sometimes deeply — and recovers. A report or chart of balance alone can hide the entire risk.
How a grid drawdown ends
| Ending | What happens |
|---|---|
| Price retraces | The basket reaches its target and closes. The drawdown disappears — the usual case, and the reason grids look safe. |
| Risk limit | An account-level stop closes everything at a set drawdown. The loss is large but bounded and decided in advance. |
| Margin runs out | New levels are refused; then the broker's stop-out closes positions, largest losses first, at whatever the price is. |
| The trader intervenes | Usually at the worst moment, after the loss has become frightening. |
Only the first two are acceptable outcomes, and only the second is under your control. The recovery arithmetic is unforgiving: after a 40% drawdown the account needs a 67% gain to return to its peak — see why a 50% loss needs a 100% gain.
Managing grid drawdown
- Decide the maximum drawdown before the first trade, as a percentage of the account, and have the strategy enforce it.
- Size from the worst case: compute the loss at full depth and beyond, not the average basket.
- Check which level the limit fires at. If it fires at level 6 of 8, levels 7 and 8 are pure risk.
- Stand aside from the moves grids handle worst: strong trends, data releases, weekend gaps.
- Watch equity, not balance.
Educational content, not financial advice. Trading gold and other leveraged products carries a high level of risk, including the possible loss of some or all of your capital. Automated strategies do not guarantee profit, and past or simulated performance is not indicative of future results. Risk disclosure.