Digitalization allowed cryptocurrencies to emerge as plausible alternative investment options for many. The rate at which cryptocurrencies have blossomed is astonishing, given that it’s a relatively recent innovation.
People are attracted to crypto investing because blockchains are decentralized, and transactions are traceable. You can control your trades at significantly lower costs. Plus, blockchain technology is extremely secure. So, it’s no surprise many people have invested or wish to invest in cryptocurrency.
Now, because of the volatility of cryptocurrencies, it’s difficult to trade effectively. It’s hard to keep track of these fluctuations consistently. You cannot pay attention to fluctuations all day long—this is where crypto trading bots come in. Bots help you become a more effective trader. So, these should be a welcome addition to any crypto traders’ arsenal.
What Are Crypto Trading Bots?
Crypto trading bots are virtual technologies automating the execution of trades on behalf of the investor to create profits. These robots are programmable. For these bots to properly perform and improve your trading gains, developers create them utilizing code and algorithms. This technology is most helpful in preventing significant losses. For example, you can program it to automatically stop or close a trade when a certain threshold is reached.
However, using a bot doesn’t automatically guarantee you’ll make enormous gains. Yes, your chance of success will increase. But, bots only work with what you feed them. So, the bot’s algorithm and your trading strategies play a huge part in improving efficiency. The efficiency of crypto trading bots largely depends on the quality of both.
How Do They Work?
Crypto trading bots specialize in producing market data analysis, making risk predictions, and trading crypto assets. All these features may require different codes. But some bots integrate all these into one.
As the investor, you need to choose a bot. After, you need to get the relevant code or program from a developer, which can be tailored to the investors’ needs. Remember, every investor has an investment strategy. So, it’s either the developer makes a code that aligns with the investor’s strategy or the investor tweaks the program on their own. Therefore, the investor should also know how to get the most out of this bot. They also need to understand how markets work because these algorithms monitor crypto market movements. Also, even if an investor has a trading bot, they still have to make some decisions because cryptocurrencies are volatile. So, you still have to manage that bot proactively.
Also, keep in mind that employing a crypto bot will not instantly make you wealthy. However, if you use it correctly, you’ll have a great chance of getting great results. You don’t need any technical or computer expertise. However, you must be aware of the trading bot’s powers and restrictions. Knowing its blind spots will help you adjust your expectations accordingly. But note that most bots come at a cost, and you’ll have to pay some fee to use them. Trials could be free, but continued use will require money. Some bots can come in at an exorbitant price. Therefore, it would be best to look for a bot with a cost structure you can manage.
What To Look For
Check if these bots are open source (i.e., are they freely accessible to anyone?). With bots, open source isn’t necessarily a negative thing. The majority of bots are the free source. This doesn’t imply they should be free, but that the code behind the bot is made transparent to users. With its transparency, you won’t have to guess how the bot works behind the scenes, which is a good thing.
Another critical factor to consider is security. Now, it may not be something you hear about often with bots. But hackers can use bots to access your trading accounts. So, it would help to be careful and avoid using fraudulent bots. Try to look for online reviews about the best HitBTC crypto trading bots or user testimonials before you commit to using a crypto trading bot. Explore your options and opt for those which have a good track record.
Types Of Bots
- Arbitrage Bots
These are pretty common. Arbitrage bots compare the prices of different exchanges. Then they profit from deals by taking advantage of pricing disparities. Given the market volatility, these arbitrage bots are a huge aid to investors. These bots can automatically set buy or sell orders to generate the most profits per trade.
This is how they work: For instance, a crypto asset is going for USD$5,000 in exchange (A) but USD$4,850 in exchange (B). The arbitrage bot can buy from exchange B and sell the asset to exchange A. In the end, the investor ends with a profit of USD$150. Imagine how much this investor could get if these trades were multiplied. This is just a hypothetical example, but it shows how arbitrage bots work and why they’re popular amongst investors.
- Coin Lending Bots
These bots assist you in lending cryptocurrency to traders who will repay the loan with interest. The purpose of coin lending bots is to make the procedure easier. It’s not very easy to scout for traders looking for coins. But these bots make the scouting process much easier by connecting you to these traders.
- Trend Trading Robots
These are the bots utilizing momentum trading. They work by anticipating asset price trends before executing a buy or sell order. If the trend shows a price increase, it sets an extended position. But if the trend is showing price will fall, it triggers a shorter position.
Advantages Of Using Crypto Trading Bots
- Ease Of Use
While bots have to be programmed to work correctly, they’re still relatively easy to use. So, you don’t have to go through the hassle of doing complex programming. Basic commands, such as setting the stop-loss target, don’t require deep computer knowledge. Most online trading bots do a great job simplifying the user experience as much as possible. However, beginners may need more time to get used to how these bots work. But, for seasoned investors, it’s usually easy to get the gist of how these bots work. All you need is a clear strategy from the get-go.
Furthermore, because the bot handles part of the heavy lifting for you, your job will be to keep an eye on whether your profit margins are increasing. Most bots are already optimized for use with various crypto trading platforms. Plus, they can work on multiple platforms at the same time. This is significant because most traders don’t just use a single trading platform but many.
- Risk Management
Since crypto trading bots are programmable, you can establish parameters helping you to manage risk. Now, as mentioned prior, cryptocurrency is very volatile. This implies that it’s an investment fraught with many risks. So, you could establish parameters to help you prevent significant losses.
Trading is a game of timing. If you miss a trade even by a minute, you could have your entire account wiped out. But, because of trading bots, you can manage the risk. Also, it’s important to note that people have different levels of risk tolerance. If your risk tolerance is low, you may even use multiple bots to ensure you don’t incur significant losses. But enterprising investors who have higher levels of risk tolerance could use bots graciously by setting generous parameters. However, this option should ideally be left to professionals to explore.
Transparency builds trust. Thankfully, most crypto trading bots have a transparent code since they are open source. There are no hidden mechanisms with most open-source crypto trading bots. This means there’s no secrecy in how the bot works. You’ll know what the bot is doing in the foreground and background at all times, which is essential. You certainly don’t want the bot to run processes behind your back.
Humans can only do so many things at a time. An investor can’t monitor the activity of every cryptocurrency exchange. High-volume traders certainly need help to manage their accounts. That’s why bots could be helpful. Bots can handle bouts of data, even complex data, simultaneously. Therefore, they’re more capable and influential as far as processing complex data sets are concerned. It doesn’t matter how complicated an algorithm is. A computer program will work fine if the underlying code is coherent and well-constructed.
Humans are generally bright. But despite their smarts, they still make mistakes. Even professional investors make mistakes. However, when you’re using crypto trading bots, you can rest assured that bots will drastically reduce the frequency of errors.
Machines are more efficient at doing repetitive tasks. Plus, bots work 24/7. All a bot needs is an effective algorithm, and it’s good to go. If you’re lucky enough to have sophisticated bots with predictive features, these bots can notify you when there’s a hot trade on the horizon. This bot can pick up a hot lead much more efficiently and quickly than a human.
Humans are creatures of feeling and can be influenced by various environmental stimuli, triggers, habits, and biases. These are part of being and can cloud an investor’s judgment. For example, investors could be struck by the fear of loss or greed and be forced into making irrational decisions. But, unlike humans, bots aren’t plagued with such emotions. So, machines can go by the book in situations where you can’t do so independently. Crypto bots could be handy for beginners who may be vulnerable to emotional decision-making. It would help if you had a bot that would stick to your strategy.
Now, since crypto bots run on computer code, there’s a probability the code could crash or the program could lag. It could be because the code wasn’t stringed properly. Whatever the case, you can’t rule out that lags and crashes can occur. Therefore, because these things happen, you as the trader should constantly monitor if the system is working as expected.
- Fraudulent Bots
Fraudulent bots exist, especially among web-based bots. These bots masquerade as authentic bots while running fraudulent programs in the background. They can steal your details and make transfers to the hackers’ wallets. That’s why security is such a crucial issue when choosing crypto trading bots. Now, blockchains are pretty secure, so hackers don’t try to hack blockchains directly. So instead, they target crypto exchanges and bots.
- Human Supervision Still Required
Crypto bots automate much of the trading processes. But they still need to be monitored. Remember, unlike humans, computers don’t have intuition. They work with what you programmed them to do. If an emergency outside of its field of competence arises, the bot may falter. This is when a human should step in and handle the situation. Humans are much more intuitive and can make more well-rounded decisions, while bots are inflexible. While humans can be clouded by judgment, that very judgment and flexibility are required to deal with the volatile nature of cryptocurrency trading.
In a perfect world, most investors would want to have a bot that does all their work. And for the most part, bots can carry a considerable chunk load of handling the actual trades. But their inflexibility is its major weakness. Bots can’t work on their own. Instead, it would be best to work closely with the bot for optimum results. Good things can happen when humans and automated robots or machines work together.
Humans are good at some intuitive tasks, while computers and machines excel at doing repetitive tasks. So, to get the most out of a crypto trading bot, investors should realize these bots are there to make things easier. But they won’t necessarily take all the work away from their table. They still need to monitor their strategies and adjust parameters accordingly because the market is constantly changing. But by and large, crypto bots are good because they save time and improve efficiency. So, they’re worth considering if you want to maximize your profits in trading.