Crypto Bot Trading: Rewards and Risks
Do you know that crypto bot trading is one of the most prevalent forms of digital currency trading? Crypto bot trading took over the cryptocurrency markets in the days of Mt.Gox, when savvy bitcoin traders wrote algorithmic trading scripts, giving themselves an upper hand in BTC trading.
Over time, developers wrote scripts that could automate other cryptocurrency assets trading, such as Ether or Litecoin. As a result, at least 86% of all crypto trading volume is computerized crypto bot trading.
As per a survey by professor and researcher Adam Cochran, 38% of all the digital currency sector traders leveraged crypto bot trading by 2019. About 66% of these traders incorporate bots in margin trading, while 4% use these bots to execute futures trades. Of course, this is not financial advice, but well thought out crypto bot trading strategies can enhance profitability and take your trading to the next level.
The reason is that, unlike equities markets with specific trading hours, the crypto markets operate on a 24/7 basis every day of the year. Cryptocurrencies are also highly volatile, the perfect ingredient for high profitable speculative trading.
Therefore, high volume crypto traders use crypto trading bots to free themselves of the physical need to monitor their trades every waking hour. Bots react much faster to market movements and are therefore the perfect arbitrage trading tools, taking advantage of price discrepancies across a wide range of crypto exchanges.
What is crypto bot trading?
Crypto bot trading uses internet-native automated programs to buy, sell, and hold digital assets. We know these programs as crypto trading bots. They use artificial intelligence and machine learning to execute trades when all preset trading standards align.
To perform crypto bot trading, you need a programmable robot. There are various types of bots, and their applications vary according to factors such as;
You can kick off your crypto bot trading journey using free bots. The avid trader, however, may pay an upward of $10 and $100 a month for a premium bot. The Pionex exchange, for instance, offers it’s crypto bot users 16 free crypto trading bots that include the Dollar-Cost Averaging Bot, Spot-Futures Arbitrage Bot, and the BTC and ETH Moon bots.
In contrast, the 3Commas crypto trading bots have the Starter, Advanced and Pro subscriptions that range from $29 to $99 per month, offering only one GRID, Options, and DCA bot for the newbie.
Open source or platform based.
There is a wide range of open-source bots that you can customize for trade. Gekko and Zenbot are good examples of open-source bots. Zenbot is perfect for intermediate users and has constant updates and exchange support.
In contrast, Gekko is easier to use, but its creator Mike van Rossum has stepped back from the active management and updates of its code repository.
However, many crypto trading platforms offer or support custom automated crypto trading bots that use pre-determined trading strategies. Binance, for instance, has a Binance grid trading bot that automates spot trading.
Its bot will place your orders at preset intervals and price ranges. In addition, Binance supports Pionex, Bitsgap, Coinrule and Shrimpy crypto trading bots, to name but a few.
Most of these bots only need direct access to your exchange wallet to execute trades on your behalf. Others have an API that easily integrates with your wallet.
Crypto bot trading is an algorithm-based trading strategy. Various crypto bots have unique trading algorithms that may give you an upper hand in trade.
Common crypto trading bots include arbitrage, market making, and algorithmic trading bots. The latter are code-driven bots such as Trality that perform open and close trading positions per the market’s buy and sell signals.
Ease of use
Some bots have pre-built programs offering plug and play crypto bot trading. However, you will have to write your trading scripts for most open source algo trading bots. The Pionex bot platform, for instance, does not support custom trading strategies.
A bot’s level of profitability may differ due to factors such as cryptocurrency and exchanges integrations, trading strategies, and trade execution speed.
The crypto bot trading process
Trading bots will execute your trades using the four main protocols below.
Crypto trading bots analyze raw data from various sources before initiating trading strategies. Furthermore, the professional crypto bot trader can leverage the Algory news scanner’s filter and alerts features to further sieve major crypto sector events for clarity when building crypto bot trading strategies.
After analyzing the data, your bot will make sound trading decisions using in-depth data analysis and then generate trading signals. The signal generator executes your trading strategy, making predictions and identifying possible trades based on market data and technical analysis indicators.
At this stage, the trading bot will distribute risks per your presets, including your risk appetite, risk vs reward ratio and capital allocation.
Your algo trading bot of choice will sell or buy, executing your trade based on the signal generated by the pre-configured trading system. Here, the signals are converted into API key requests that the crypto exchange can comprehend and process.
Crypto bot trading rewards
1. Saves time
Crypto bot trading eases the monitoring of 1000 cryptocurrencies and multiple exchanges. With a bot on your side, you no longer need to check every 10 minutes to keep track of relevant price trends. Invest in crypto trading bots if a day spent poring over charts, graphs and taking notes on price trends is not your cup of tea.
Setting the crypto bot trading parameters on a top-notch bot platform is a breeze. You only need to specify a time and how much crypto you want your bot to trade on your behalf.
Beginners can opt for bots with pre-programmed trading strategies. In contrast, the professional can opt for advanced options such as the HaasOnline’s Flash crash bot that comes pre-loaded with 56 weeks of trends and historical data.
These bots will then automate the trading process monitoring massive exchanges and digital asset price movements while you dedicate your time to other supportive tasks.
Crypto trading bots will scan all crypto markets better than humans and provide the latest trends and stats for profitable trading. To cover all your bases, however, leverage the Algory crypto news aggregator mobile app and review all major digital assets events while on the go.
2. They lower the trading entry barrier.
Crypto bot trading platforms such as Coinrule, Shrimpy or Cryptohopper are ideal for beginners, offering robust tutorials and options such as copy trading. On top of that, they offer new traders access to technical tools such as trend analysis that enhance profitability.
As a result, a crypto enthusiast can kick off their crypto bot journey without much fear. For instance, a novice trader can use the copy trading feature to copy the strategies of successful traders to make profits. That said, develop robust trading strategies to ensure long term crypto bot trading success and sustainability.
3. Ensure emotionless trading
Do you know that 80% of day traders only make a profit in the first and second months of trading? This is because beginner investors often start their trading journey overly conscious of their trading decisions. Afterwards, most traders abandon sense and, through emotional trading, play Russian roulette with their trading capital.
Trading psychology can take over when you begin to lose money or when you have unrealistic profit expectations. Psychology can also adversely affect your trading process when you encounter several winning streaks, getting you carried away by euphoria.
Then, the crypto market is open at all times and is ultra-volatile, presenting unending trading opportunities, a perfect setting for burnout and poor decision making.
Most novice traders often base their trading decisions on FOMO or rumours rather than strategic trading. Emotional decision making is a trading risk, leading to massive losses. The best traders approach the market without much emotion.
Crypto bot trading is a perfect example of emotionless trading. It instills trading discipline in volatile market settings where fear can lead you to sell too early in the game or push your luck till you are out of capital.
Bots optimize long-term performance without the short-term costs of human emotions trading digital assets with zero emotion, greed, panic, fear, and bias.
4. High-speed trading
Crypto traders have to make split-second decisions in a highly volatile market. As a result, slow decision-makers often lose significant profit opportunities. However, crypto trading bots can make lightning-speed decisions and tap into every profit-making opportunity in seconds.
They can execute thousands of transactions and millions of computations as prices fluctuate, making them perfect tools for the volatile crypto market. The more volatile the market is, and the faster orders are executed, the greater the chances of making profits.
5. Risk diversification
Crypto bot trading can help minimize the chances of losing a substantial amount of your trading capital. Bots can balance your risk and reward rations and automatically lower exposure to unfavourable trading assets.
Besides scanning multiple markets, bots can monitor their trades in real-time, helping you review your positions and lessening your risk by spreading your investment among several digital assets. On top of that, crypto bot trading may help you diversify your investment funds and lower portfolio risks.
Crypto bot trading risks
1. Requires technical skills
While some bot platforms offer out of the box crypto bot trading solutions, a professional trader who wants to customize their algorithmic-based automated program may require specialized skills. For example, you may need financial or coding expertise.
Automated programs may require technical maintenance since some are only partially computerized. Therefore, beginners might need support or third party assistance for set-up and maintenance.
2. Automated trading risks
Unbeknown to most new traders, crypto bot trading is fraught with risks. There are no hard or fast rules regarding crypto market behaviour. Moreover, some crypto trading bots are unreliable and may not handle unusual market conditions like extreme economic circumstances well.
You will need to man your bot and intervene to ensure constant profits. Consequently, do not put all your eggs in one basket. Instead, test your bot’s parameters with a few bucks and increase its capital allocation after gauging its reliability.
3. Limited crypto trading options
List the types of currencies you want to trade before getting into crypto bot trading. These bots support exchanges and crypto assets to various degrees. Choose a bot that integrates with your exchange and supports your chosen crypto assets.
4. Unpredictable results
Some bots offer market-tested strategies, and they will make profits under the right market conditions. However, other bots have new and untested strategies and may produce unpredictable results.
5. Counterparty risks
Some bot scripts may present counterparty risks such as hacked API or wallet connections. Consequently, avoid flashy crypto trading bots that lack proven market performance and reviews. In addition, you could lose your crypto private keys to hackers or incorrect bot settings.
Their algorithm errors could, for instance, generate losses rather than profits when the market movements take a sudden sharp turn. Crypto bot trading reviews are a goldmine of information on safe bots. But it is important to consider the source of the reviews. For example, some users may write a positive review for sign up bonuses.
Alternatively, seek recommendations from active traders. Also, exchange support may offer important information on the bot compatibility, safety and performance.
Reap more from crypto bot trading by performing extensive market research, using tools such as the Algory crypto and news scanner. Algory is an excellent alternative to bot trading and a top-notch decision-making tool for all traders. It is a free and innovative platform that helps you monitor critical crypto sector news from one neat interface for faster trades.