A trading bot is basically a software program that communicates directly with financial markets (often using APIs to access and interpret relevant information) and places orders on your behalf to buy or sell based on the interpretation of market data.

What Is a Crypto Trading Bot  

Trading bots are widely available programs connecting to the cryptocurrency exchange of a user and doing business on their behalf. 

They work with a variety of indicators and signals, including moving averages and indices. 

The idea is simple: to help users in the markets make money while not wasting much of their time. 

The underlying assumption is that computers are much better than humans when trading.

Because of market volatility, trading bots have become increasingly popular among traders by allowing them to stay in charge of their trading at all times, with the bot not sleeping even as the trader is. 

Since most cryptocurrency exchanges allow you to use an application programming interface (API), through a program, usually automated software called trading bots, you will be able to use this to pull information from the exchange and make specific changes to your account.

In addition, a properly configured bot allows for faster and more efficient execution of trades than the trader would be able to do manually.

Such decisions are taken by bots by tracking the price movement of the market and by responding in compliance with a collection of pre-programmed laws. 

Usually, market behavior such as size, orders, price, and time will be analyzed by a trading bot, although they can usually be configured to match your own tastes.

How Do Crypto Trading Bots Work?

Signal Generator

That’s where we’re predicting. 

Some data will go into the signal generator, and from the other side a buy or sell signal will pop up. 

If you see any bot’s using “technical indicators,” then it’s probably a good idea to try not to make contact with your eyes and slowly return.

Risk Allocation

This takes the signal to buy or sell, then decides how much to buy. 

As in, should we devote everything or just a portion of our resources to this trade? 

Do we have to buy everything in one go or do we have to average it?

So now we know the direction, we know how much we want to buy or sell, next to that is the part that does the trade.

Execution

See, if you have a lot to buy in one go (say you’ve got to buy a total of $5,000,000 for 250 customers), then you probably don’t want to do all this in one trade because you’re unlikely to get a good price.

If you’ve got the exact same bot as 500 other people and you’re all running in disjoint instances (i.e. they don’t communicate with each other), this will really give you unfavorable pricing.

All three parts, signal, risk, and execution, need to apply their own separate algorithms and processes of optimization. 

If you have a bot that fudges or worse through any of these parts, it will not hold you in good stead for profitability.

Trading Bot Strategy Types

Although the cryptocurrency market is much less mature than other financial markets, the digital nature of the market has meant that, despite the fact that it had significantly less time to integrate algorithmic trading, the technology did not slowly catch up with its competitors in providing a trading bot service, enabling investors to access a wide range of trading styles. 

Arbitrage

One of the key techniques that investors used to make profits in the early days of cryptocurrency trading were arbitration – i.e. purchasing assets in one market and then selling them in another at a higher price, thereby making gain on the difference.

Since cryptocurrency exchanges have been decentralized, there have often been large differences between rates offered on different exchanges, which means that gains can be made by arbitration.

Market Making

Trading bots can also allow investors to make use of the strategy of market making. 

This strategy provides for “continuous buying and selling prices on a variety of spot digital currencies and contracts for digital currency derivatives” in an effort to “capture the spread between buying and selling price.”

To adopt market making techniques, it includes both buying and selling limit orders close to the existing market position. 

When prices fluctuate, in order to profit from the spread, the trading bot must automatically and continuously position limit orders.

Will Bot Trading Be Better Than Humans?

Artificial intelligence and machine learning help the constant development and evolution of trading bots, but there is still a long way to go to beat human instincts.

It is unlikely that a bot can ever detect a devastating threat to the world of cryptography, or gage the importance of emerging technologies. 

It is also worth remembering that if everyone were to use the same strategy put forward by a trading bot, nobody would have that all-important advantage that would result in profitable moments.

That being said, many custom-made bots have the potential to scour social media with keywords for information. 

While this could help flag up an investor’s crucial development, it would be dangerous for the bot to act alone in the event that the post turns out to be “False news “– or rather a rookie crypto startup’s over-optimistic assertion.

Are Crypto trading bots legal?

Trading bots are not only legal, they are often a welcome feature. In the traditional stock market scene, they are also widely used.

However, there is a more complicated scheme on the stock market which covers the legality of these trading bots. In fact, there are some restrictions on who can use them and how.

But such constraints are non-existent in the crypto industry, and a trader can easily use their option of a trading bot to help supplement their due diligence, analysis, and investment decisions.

There are many crypto trading bots available from which you can choose. You can improve your trading activities as long as you go for a smart one that fits your needs as well as your budget.

Getting A Bot

There are different platforms offering services for grid trading, but I highly recommend Bitsgap. What’s the reason? It’s the only service free to use at the moment.

The grid-trading bot Bitsgap supports the following exchanges: Binance, Bitfinex, Bittrex, Pionex, Poliniex, Coinbase, Gdax, Cryptopia, HitBTC, Kraken, Kucoin, Huobi and more are added regularly. 

Final Thoughts 

Trading bots can help traders to ensure that they interact with the market at all times, even if they are physically unable to do so. 

They can help remove some of the stresses and emotions that are frequently found in any financial trading market, including the cryptocurrency market.

Trading bots, however, are not for everyone, and not everyone needs one. 

Casual traders aren’t the primary goal for trading bots, and if you’re going to buy physical Bitcoin and store on a wallet then a trading bot is probably not the right investment.

However, if you are not a professional developer or if you are familiar with building financial strategies, trading bots may not be for you either. 

But, if you have the necessary knowledge and ability to overcome these obstacles, a trading bot can be a useful tool for monitoring and making Bitcoin market gains.

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