Crypto space has undergone surreal and tremendous changes since the beginning and the developments have been drastic within the past few years. With the worldwide trade of cryptocurrencies 24×7, managing and regulating crypto trade can be quite difficult and even if regulated the accuracy and precision of the results can’t be trusted, hence the need for an automated system arose and led to the launch of crypto trading bots. This article features the basics of crypto trading bots, continue reading to explore the crypto world and their automated trading.
What are Crypto Trading Bots?
Crypto trading bots are automated programs that permit the automatic trade of cryptocurrencies around the clock in every part of the world. The automated bot analyses the market faster than any human and buys and sells assets at the right time. These bots are given access to investor’s accounts to automate trade. Every bot does not serve the same purpose, they are generally designed to achieve specific goals. For the effective functioning of bots, a unique hardware and software combination is necessary.
For an investor with a large number of assets, continuous monitoring can be difficult, and with no continuous monitoring yielding a profit can be an ever-lasting dream. A crypto trading bot puts an end to this issue. It monitors the highly volatile crypto space the whole day and every day without any failure and makes appropriate trades.
By evaluating the trend and previous data, a signal generator analyses the possibility of trade and generates buy and sell signals accordingly. The risk allocation function decides the amount to be bought and sold. The execution function converts signals to API requests and executes the actual buy and sell process.
Advantages of using crypto trading bots
Crypto trading bots improve the experience and profits while trading in the crypto space. It helps in simultaneous multiple currency exchange, track price volatility, and determine market trends. The advantages of using a crypto trading bot include,
1. Round-the-clock accessibility
A crypto trading bot can work continuously throughout the day without getting tired like a human. Following the predetermined set of rules, the bot automates buying and selling and earns profit without the need for any external monitoring.
2. Efficiency
Trading bots analyze large collections of data within a few seconds and generate accurate outcomes. It identifies trading opportunities and executes them quickly. This helps traders to utilize all the opportunities to gain profits.
3. Eliminate human-driven emotions
Since the trading bots operate on automated computer programs and algorithms, the chances of emotion-driven decisions are nil. It prevents impulsive and illogical decisions that a human tends to take on occasion and leads to severe losses.
Types of trading bots
As we mentioned, there are different types of bots based on the purpose they serve.
1. Arbitrage bots
Arbitrage bots are the most popular bots used in the crypto industry. It is designed to analyze the price difference of cryptocurrencies in different markets to generate profits. The automated trading software analyses the market behavior to generate numerous possible decisions. By connecting through an API, the bot monitors the changes in the market prices of cryptocurrencies and tallies it with the conditions set by the user. Once the conditions are met, it places the order and executes the trade. Since the crypto space is a platform that requires consistent and faster management, the use of an arbitrage bot greatly improves the potential for a fair outcome. Different types of crypto arbitrage bots are cross-exchange arbitrage, spatial arbitrage, and triangular arbitrage.
2. Market-making bots
Market-making bots automate the buying and selling of cryptocurrencies to yield profit. Generally, a market bot buys and sells orders across different exchanges. It ensures that there is always a market for buyers and sellers, and thereby increases the liquidity within the market. Spread bot, a type of market-making bot allows you to place a buy order below the market price and sell it above the market price, creating a profit. This bot also eliminates the long wait and big price fluctuations and helps to earn small profits from spreads. Apart from spread bots, higher frequency trading bots, crypto AI bots are the different types of market-making bots.
3. Trend following bots
Though there have been several crypto trading bots, most of them were not effective in accumulating the volatility of crypto space. However, trend-following bots managed to follow the volatility to a limited extent. Trend-following bots analyze real-time crypto trends and execute appropriate trading strategies for investors. It determines the trends in the industry by using technological indicators and algorithms. It allows users to invest in multiple cryptocurrencies at the same time without losing the efficiency. Moving average crossover and relative strength index are the popular trend-following strategies.
Limitations of Using Trade Bots
As every coin has two sides, a trading bot has advantages and disadvantages. The main limitation of trading bots is the lack of emotional intelligence. Though emotional intelligence creates negative impacts on most occasions, sometimes it can result in missed opportunities.
1. Complexity in design
Trading bots are designed using programming codes and algorithms that are difficult for a novice trader to understand. To run the bot effectively, users must know the technical indicators and strategies.
2. Chances of errors
The bot runs on the predetermined computer programs. If any error occurs in the code can result in a huge loss in trade.
3. Hacks and scams
To automate trade, the bot requires access to an investor’s account which can lead to hacking. The linked nature of cryptocurrency can affect the security of the system. To avoid the potential risks of hacks and scams, traders must use a reputable and safe bot platform.
Conclusion
Trading bots eases the process of crypto trading. It automates the transactions once predetermined conditions are met to generate profits. The quick buy and sell prevents the missing of any opportunity to yield a profit. However, the platform is prone to risks like hacking, bugs, and complexity in design.
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