Crypto trading can feel like an arcane and intimidating concept to the average person. This is especially true when enthusiasts often have complicated multi-screen setups displaying all the major cryptocurrency exchanges. However, you don’t need an advanced trading interface and unlimited free time to become a crypto trader – that’s what crypto trading bots are for.
But what exactly are crypto bots, and how do they work? Keep reading for more information on automated trading bots and how they can simplify your crypto experience.
What Are Crypto Trading Bots?
Crypto bots are software programs designed to automate the trading process on cryptocurrency markets. Some types of bots use artificial intelligence, algorithmic trading, and machine learning to emulate experienced traders’ strategies. In contrast, others use basic if/then statements to buy or sell once prices reach a certain range.
Through crypto bots, inexperienced traders and advanced traders alike can execute trades within critical time frames to maximize gains and cut down on losses. Unlike the stock market, crypto exchanges tend to be more volatile and change 24/7, meaning traders are more likely to miss out on major exchanges without bots.
Despite this, using a bot platform for portfolio management can be a controversial approach to trading. Some cryptocurrency traders find this level of automation “unfair”, while others decry the rise of scam bots designed to take your currency.
How Does A Crypto Trading Bot Work?
If you’re a budding crypto trader looking to automate your transactions, you can choose from many crypto trading bot services available on the web. Unfortunately, these services usually require a fee before the development team allows users to download the base code.
But how exactly do these cryptocurrency trading bots execute your trading strategy?
The very first thing these automated trading systems need is access to your account via APIs or Application Program Interface. This is so they can manage your trades on popular exchanges. This process might be scary to inexperienced traders, but you can revoke bot access anytime.
That aside, here’s a breakdown of how bot trading works:
- The signal generator: The signal generator automates the more challenging tasks a successful trader usually has to do by themselves. This includes gathering data about current market conditions and technical analysis indicators, as well as making a smart trade based on the information.
- Risk allocation: Trading on the crypto market means you’ll inevitably have to deal with unwanted risks. However, most popular types of trading bots can be programmed to minimize losses from bad trades. Users can set a specific price range on the advanced trading interface, so that the bot automatically sells once conditions are met.
- Execution phase: Once bot setup is complete and all settings have been tweaked in the trading terminal, you’re ready to let it loose on the financial markets based on technical indicators. However, this doesn’t automatically turn trading into passive income – you’ll still need to check back regularly.
Different Kinds Of Crypto Bots
Because market conditions are ever-changing and private traders have various needs for portfolio management, development teams have released several types of bots. These programs are now responsible for a large chunk of the total crypto trading volume.
But what are the different kinds of cryptocurrency trade bots? Read on to learn about some of the most popular types of bots.
An arbitrage strategy involves moving money from exchange to exchange and profiting from the difference between platforms and coin sets. As a result, arbitrage crypto trading bot strategies are typically more straightforward since they don’t need complex algorithms to make a smart trade.
Exploiting arbitrage opportunities is an excellent way for inexperienced traders to avoid unwanted risks while learning about the crypto market – all while making a little bit of currency.
Coin Lending Bots
Plenty of users have made a killing on more popular exchanges, which means they have lots of currency stashed in their wallets. Some folks may be content with just letting it sit, but others have lent out coins to retail traders to maintain their positions. However, finding high-return loan requests can be rather taxing.
That’s where coin lending bots come in. This bot platform seeks out the best possible loan requests and sends out currency based on automated trading rules users set for themselves. However, this can be a bit risky. As a result, most advanced traders partake in stocking user accounts with cryptocurrency holdings.
Market Maker Bots
A market maker is an algorithmic trading bot that gives users the advantage of time, price, and volume of trades, which can be an excellent approach to trading if you’re new to the game.
These crypto-bot trading services use curated, pre-defined strategies to make money. This is done by consistently selling currencies for more than they paid for them, requiring users to have a large volume to sell off to “make a market”. As a result, these bots are usually quite demanding and need advanced trading algorithms and a lot of time to be effective.
Final Thoughts On Crypto Bots
Many people have made their fortune through crypto, which means entering the arena as a newbie can be intimidating. However, crypto market conditions are perpetually in flux, which leaves lots of room for an automated trading platform to make a bit of profit.
However, a crypto bot isn’t the end-all solution to your trading woes. Instead, we recommend lending your magic touch and tweaking the algorithm as the market changes. With human diligence and the infallibility of bots, you might just come away with more money than you started.