Crypto Bots: The Evolution of Trading

As the world becomes increasingly digitized bots are becoming more and more common in the crypto trading space. They defy human capabilities by executing trades with insane speed and precision. That is why it is essential to learn the ins and outs of this novel technology.

But don’t worry. In this article, I will be covering all aspects of crypto trading bots. So without further ado, let’s jump right in.

Crypto bots are automated programs that execute trades based on a defined set of rules. For instance, a specific price or time of day. 

What are crypto bots?

Crypto bots are used to automate the trading process. They are based on algorithms that are defined by traders.

By granting access to the API keys for your exchange account, trades are taken on your behalf. These trades follow a set of parameters. They are ultimately configured to your risk tolerance and trading style.

The advantages of crypto bots

Crypto bots have several benefits. These include:

Quick trades – bots can execute trades in a fraction of a second. This is especially important in the cryptocurrency space due to the extreme volatility. Moreover, they can be effective in buying tokens at launch before other investors.

24/7 trading – bots can trade day and night. In an industry that operates all hours of the day, this is vital. For instance, people in Asia can set up bots that trade during the New York Stock exchange opening hours.

Bulk data analysis – thanks to the underlying technology of crypto bots they can analyze vast amounts of data. This can lead to more informed trading decisions which are not possible with human capabilities.

Emotionless trading – emotions are the greatest enemy to traders. They lead to panic selling and FOMO. Thankfully, bots can take emotions out of the equation. As they are based on preset parameters, there is a predetermined plan set in place. The Execution of this plan is ultimately determined by an automated process.

Types of crypto bots

DCA bot – this bot will dollar cost average cryptocurrencies at defined intervals. This is a great tool to average into the market.

Arbitrage bot – this bot takes advantage of the price variations between assets in different markets. They work by buying and selling cryptocurrencies on different exchanges to generate a profit.

Crypto lending bot – this automates the process of lending your cryptocurrencies. For instance, the parameters for the loan can be defined. Whether that be the collateral required or the interest rate. This saves users a considerable amount of time.

Portfolio rebalancing bot – this bot is great for the risk-averse. Essentially, it works by rebalancing your portfolio to the desired weight for each cryptocurrency. For instance, if you wanted a portfolio that contains the top 10 cryptocurrencies evenly split it would maintain each one at a 10% share.

Leverage bots – these bots are great if you want to add leverage to your trades. It allows users to gain greater exposure to the market than the equity they have deposited via the use of borrowed funds. However, although this trading bot increases the potential gains, it also increases the potential losses.

Trading bots – this is the most popular trading bot and rightfully so. It works by using various technical indicators to predict the future price of a cryptocurrency. This could be the use of moving averages or RSI. In my opinion, they are the best type of bots.

FAQ

  • Are they profitable?  yes they are profitable. Investors in the traditional finance space have been using them with great success for decades. Over 80% of the money in the cryptocurrency space is traded using bots. That being said, they have to be tailored in a specific way to operate profitably.
  •  Do crypto exchanges allow them? – all of the major cryptocurrency exchanges allow the use of trading bots.
  •  How expensive are they? – the price of a bot varies from being free to over $1000. However, the average cost is around $50.

Final thoughts

Overall, trading bots are a great way of gaining an edge on the market. Although they are not guaranteed to be profitable, they are ultimately another tool in the toolbox. If you want to execute fast trades 24/7 they are a great choice. I hope you found this article useful and thanks for reading.

Want to learn about crypto whales? Click here to read my previous article.