Beginner’s Guide to Trading Crypto. Part 12

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Crypto Trading Bots: The Servants That Make You Rich

The classical stock market has its phases, since it sleeps and awakens to resume trading. Unlike the traditional financial market, the crypto market never sleeps and trades nonstop. Such an approach can be quite profitable for those who resort to modern means of replacing themselves at the screen to go to sleep and let trading continue in automatic mode.

The advent of trading bots allowed not only traditional market participants, but also crypto market enthusiasts to make profit nonstop at speeds and functional capabilities that humans will never be able to achieve.

Trading Bots

In essence, trading bots are software programs that are installed as add-ons on financial software interfaces. Acting as automated trading operations facilitators, the trading bots execute strategies and actions that they are programmed to perform by the traders. Trading bots can place buy and sell orders based on parameters and algorithms, while more advanced models of bots are capable of conducting in-depth analysis of financial markets to reveal profitable avenues and approaches to strategies.

The bots themselves rarely take action on their own, as traders program them to analyze market volumes, cups, dynamics and other parameters to act based on a pre-determined strategy. Though highly popular on traditional markets over the last decade, trading bots are quite restrictive in both their price, which can start from $10,000 on a Bloomberg trading terminal, and their limited functionality. However, the advent of blockchain and cryptocurrencies together with AI and neural networks has allowed trading bots to evolve into more advanced constructs capable of relatively independent “thinking” that allows them to take action based on a variety of aggregated datasets.

Cryptocurrency Trading Bots

Cryptocurrency trading bots have arisen together with the advent of crypto exchanges. It did not take programmers long to develop bots capable of monitoring the crypto market and executing strategies. The similarities between the crypto and traditional markets have made the transition even easier.

Like their traditional counterparts, cryptocurrency trading bots act on the basis of data they aggregate from a variety of sources, namely the crypto exchanges. They analyze market parameters and execute the strategies that the traders program them to perform. Cryptocurrency day trading bots are the most popular type, since day trading still provides the biggest scope of opportunities for making profits on heightened market volatility. Bitcoin buy and sell bots are some of the most popular constructs tailored for the market.

The logical arising question of how to make a cryptocurrency trading bot is a fairy popular one on the web, and the answer is not as simple as it would seem. Making a crypto trading bot is the job of traders/programmers who are qualified enough to make a piece of software capable of coping with vast amounts of financial data. In fact, cryptocurrency trading bots are available from open sources on the web and there are dozens of template software samples available to tailor any need.

The internet is also awash with crypto trading bot reviews, which include Bitcoin arbitrage bots, day trading bots, specialized crypto coin trading bots and many others.

Apart from expensive and highly advanced crypto trading bots, there are also free models that are available to average users. The constructs available range from beginner to advanced trader level in their complexity and user interface friendliness.

Apart from average trading bots, there are also arbitrage bots, which are also software programs that have features allowing traders to set up a variety of parameters that will directly affect the bot’s behavior. With such an approach to trading, the bots can enter various exchanges that support them and trade in autonomous fashion on the trader’s behalf. The main advantage of arbitrage bots is that they can make instantaneous decisions depending on asset price movements to make profits for the trader.

The Main Types Of Strategies Used By Bots

Since trading bots largely act as avatars for traders, they mimic the strategies that the traders program them to execute. Some of the most popular strategies that bots are used for are the following:

Trading on the exchange is the classic norm under which a bot is programmed to buy or sell some assets at predetermined prices by placing buy and sell orders.

Arbitrage is the simultaneous purchase and sale of an asset for the purpose of making a profit from an imbalance in its price. Identical or similar financial instruments on different markets or in different forms have different prices, and by exploiting those differences, the bots make profits for the traders.

Market making is the third most popular strategy employed by trading bots. Namely, market making is the execution of strategies or sell-side methods designed to capture spreads, otherwise known as the difference in price between buys and sells. In essence, the bots act as market makers, essentially acting as a guaranteed counterparty for other traders that are single directional in the market.

Other Useful Features

Trading bots are not only about trading, as there are some constructs which were designed as assistants to traders rather than as direct replacements or avatars. There are bots that are designed as market dynamics analysts, others act as aggregators of information that provide detailed market charts, while some are deigned to filter out useful information in news backgrounds that can affect asset prices. The variety of bots on the market is immense and they have been around for far longer than the crypto market itself. In fact, many bank tellers, online shop assistants, even surveillance systems are actually bots, which have been designed to perform specialized features.

The same applies to the crypto market, where the merger or AI and neural networks has given birth to invaluable constructs that help traders and enthusiasts make sense of the market.

The Risks

Needless to say, there are risks involved with using bots as well. Since the software is imperfect by nature of its automation, limited independence and lack of critical thinking outside the set parameters, bots should be monitored constantly and are by no means a panacea that would ensure profits. Bots are more like assistants that can take over for the trader for a limited time and execute mundane tasks. More complex tasks, such as analysis of charts, in-depth technical analysis and decision making are still the responsibility of human traders.

The risks of loss run high if trading bots are abused or left unchecked. Given that the bots cannot always spot market movements that have to predicted, it is highly advised to use bots with caution and rely on personal involvement in the trading process. 

Jump to: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, Part 11.

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