Crypto trading bots are a bundle of tools that allow you to automate your cryptocurrency trading. They are able to acquire market data, analyze it, measure market risk, and purchase and sell digital assets. This is just like hiring a professional to handle your crypto trading while you sit back and watch your profits increase.
What is a crypto trading bot?
As per crypto media site a crypto trading bot is computer software that runs through the internet and automates repetitive chores more quickly than humans. According to some estimates, these bots interact with online sites and users, search for information, and do other jobs contributing to half of all internet traffic.
We can say that that the bots are like artificial intelligence-based software programs that perform operations depending on pre-defined parameters. This means, no further missed trades or prospects. Using a set of algorithms, you may purchase, sell, or hold assets in a fast, effective, and automated way at any time of day or midnight, from everywhere on the planet.
How do crypto trading bots work?
Trading bots offer great speed and efficiency, fewer mistakes, and emotionless trading by talking directly with crypto exchanges and executing trades automatically depending on your own defined parameters. The three main steps of crypto trading bots include:
- The signal generator effectively performs the functions of a trader, generating forecasts and finding potential trades using data feeds, fundamental and technical indicators.
- An algorithmic approach to risk allocation involves a bot allocating risk based on criteria and regulations outlined by the trader, which often involves how much capital is deployed while investing.
- The execution process involves buying and selling cryptocurrencies in response to the signals you give through the pre-configured trading system. The signals get translated into API key applications while the crypto exchange will be able to comprehend and handle them at this point.
Different types of trading crypto trading bots
Trend trading bots
Though you could guess from the bot’s name, Trend trading bots considers the momentum of a certain asset and, after assessing it, conduct buy or sell orders. The bot will enter a long position if the trend suggests a price increase. Similarly, if the price falls, it will enter a short position.
In a nutshell, trend trading means that an investment will continue to move in the same direction as it is now, and trend trading bots take advantage of this fact. Crypto trading bots can use price action or other technical indicators, such as trend lines, moving averages, chart patterns, and momentum indicators, to detect trends.
Arbitrage bots
Arbitrage can be defined as a deal that takes advantage of a pricing imbalance in multiple marketplaces or formats. This is particularly the case in cryptocurrency marketplaces that are inefficient. You can benefit from the current imbalance by buying and selling an asset at the same time.
Arbitrage crypto bots are therefore configured to follow the price difference between the currency in several marketplaces. Later, acquire the coin at a lesser price and sell it at a higher price. Arbitrage bots were especially popular prior to the crypto craze of 2017, but they are becoming more difficult to use now that the margin between exchanges is considerably narrower than it once was.
Coin lending bots
Lending coins to margin traders who could later return the loan with a share is one of the most exciting ways to make money with cryptocurrencies. This margin funding option is available on several exchanges. However, manually setting the number of parameters every time a margin trader returns your money and you need to organize a new loan is laborious.
Coin lending bots allow you to automate the transaction, save time searching for the best interest rate, and reap the benefits of sudden increases in loan alternatives. In setting up such a bot, you can define your strategy, wait for the interest rate to reach a certain level, and select a currency and a date when you want your money returned.
Market maker bots
The market maker bot uses the order book spread to generate profits for you. The larger the gap and the more profits market maker bots may yield, the more frequently an item is traded. The main intention is to sell to investors at a greater price than the selling price as frequently as feasible.
Using a market maker bot, the platform’s owner places an order at a price higher than the market price, thereby creating a market. It searches for markets with a bigger spread and does so 24 hours a day, seven days a week, offering a trader a time, volume, and price edge.
Crypto Trading bot Advantages
- Using crypto trading bots to automate your trade saves you time. You might not have to waste your lunch hour reading financial news or checking the stock market. All of the heavy work is done for you by a bot.
- Bots aren’t bothered by sleep or boredom. If your approach entails a lot of short-term transactions, the monotonous activities will eventually wear you out. A bot can trade cryptocurrencies 24 hours a day, 7 days a week, 365 days a year.
- Humans are slower than bots. You won’t be able to execute transactions as rapidly as a bot, even if you’re sitting at a monitor watching the crypto market in real-time. Because you won’t be trading many seconds behind the market, you’ll be able to make better transactions.
- Crypto trading bots do not have feelings. We’d all want to think of ourselves as astute, calculated investors. But we get easily afraid, nervous, or excited. The algorithm is all that matters to a bot.
Cons of Using a Crypto Trading Bot
- You must continue to monitor your investments. Yes, the bot will keep an eye on the market and carry out your orders. However, if you don’t keep an eye on your account, you could not notice when you’re losing money. Even if you’re using a bot, you should double-check that the bot’s plan is working.
- You must still be aware of your surroundings. For executing the transactions, trading bots frequently use several market indications. You shouldn’t be utilizing your crypto trading bot if you don’t understand how it works.
- Wallets are more secure than exchanges. Your money will be held on an exchange unless you’re utilizing a blockchain-based bot. While large exchanges are often secure, you rarely know when the next big attack may happen. In contrast, a hardware wallet is potentially impossible to hack.
Do you Need a Crypto Trading Bot?
You should use crypto trading bots if you are comfortable with its strategy. Learn about various bots and how they make judgments until you discover one that fits your requirements. It’s also important to remember that even the finest bot can’t promise anything. If you can’t afford to lose money, you should generally avoid cryptocurrencies. However, if you’re comfortable investing in cryptocurrency, a bot may provide several benefits. We’ve already discussed how much time you’ll save by using them. You may, however, invest in various cryptocurrencies using the same bot.