A decade ago, cryptocurrency trading was done in small circles with only a few platforms allowing users to trade. It has taken efforts from many people to massively grow the market, which now has millions of traders with massive transaction volumes. Some have gone as far as to dub the market as the new wall street in town. Crypto Wall Street!
The cryptocurrency market has unique features compared to your traditional market. For instance, the cryptocurrency market operates 24 hours a day, 7 a week, 365 days a year. There is no sleep in crypto. In addition, the market faces a lot of challenges, including regulations and volatility of the market that threaten traders’ investments. Given this, traders have sought the help of technological inventions to help them keep up with the demand. One such device is the use of bots.
What are Crypto Trading Bots?
Cryptocurrency trading bots are software programs that automatically buy and sell on behalf of traders. These programs use API to explore market opportunities and, in turn, use the finding to make a profit for the trader. These programs factor in price movements and pre-defined sets of rules, among other factors. Since the entire process is done through computers, it offers excellent speed and precision, which are not available through manual processes. Notably, crypto bots monitor both the cryptocurrency market and other traditional markets at the same time.
Each bot works differently depending on the algorithms created by the application developer. Bots are capable of doing anything from trading to construct custom indexing strategies to advanced real-time arbitrage across exchanges.
Usually, traditional trading bolts are quite expensive, making it impossible for some traders to access them. However, it is not often the case in the cryptocurrency market. Some exchanges within the space provide their traders with direct access to their market and exchange order book. This, in turn, makes using trading bots easier and cost-effective.
Types of Trading Bot Strategies
Arbitrage refers to buying assets from one market and then selling them in a different market for profit. This method was among the main strategies used by crypto traders when the idea of cryptocurrencies was first introduced.
2. Market Making
Market making is a strategy that allows traders to simultaneously provides liquidity to both buyers and sellers in a financial market. In this strategy, traders also referred to as market markers, determine which assets can quickly be bought or sold without affecting the stability of its price. This then allows the traders to create a market by acting as both a buyer and seller of last resort and eventually earn profits.
Traders make use of bots to automatically place limit orders on the trading asset to allow them to gain profits, whether as a buyer or the seller. It is important to note that this strategy is quite competitive and works well with high liquidity.
Why use crypto bots?
Give their cost; some traders do not think bots are worthwhile investments. On the contrary, using bots has helped many investors make huge profits, especially given the volatile nature of the cryptocurrency market. Firstly, like traditional trading markets, the crypto trading space can be tiresome and time consuming for traders.
Secondly, the trading game is all about precision. Trading requires one to know the precise time they need to move into or out of a position. Many are times when a trader acts on a whim only to regret the decision second later. These movements determine whether you make a gain or lose your advantage. At times, precision would require a trader to keep up with current conditions like news, regulations changes, and so forth before making a move. For bots, these are simple command that takes less time and effort.
Trading is a complicated affair! Balancing between monitoring your investments and leaning the complex processes of trade can easily lead to mistakes and misjudgments. This is why many traders have opted to get the help of technologies that better understand the complexity that comes with trading.
Last, you will need to stay online to keep up with the constant changes. Since the cryptocurrency market is a 24/7 space, it becomes hard for traders to monitor their investments during the night or in case one gets sick. The risky game of trading can easily lead to loss of funds within seconds, especially when you are not around to make the necessary changes. However, with the help of bots, one can minimize these risks and act accordingly. Using bots also helps traders sleep better at night and find time to engage in other activities.
Currently, there are many bots available in the market. For new traders, deciding which bot best suits your activities can be quite a handful. It is much harder if you have no idea what to look for in a bot. There are a few factors to help one make an informed decision. These include:
Ease to use
This applies mainly to new traders who are still finding their way around the market. Getting sophisticated software could lead to one making a huge loss, especially when you make a wrong click or delay to act accordingly.
Complex software also takes a lot of time to learn before one can figure out how it works. The time spent learning the dos and don’ts of the bot would have been spend trading and earning profits on the platforms. It is worth mention that each trader has a different way of understanding technology. Given so, one should check out a few bot products before purchase.
Before investing in a bot, make sure the developer has a good review and can be trusted. It would be a waste of resources to buy a bot only for it to go offline when you really need it. Efficiency and reliability are crucial before buying any software more so bots. A reliable bolt will ensure you are always online, especially when it matters.
Hackers seeking to gain a dollar or more from users are constantly attacking technologies. Secure bots ensure your earnings stay safe away from attackers. Again, it is paramount to buy bolts from trusted developers. One way to ensure security is by avoiding new products in the field. You can also take extra measures to add protection to your account.
Profits and losses
The general idea of using bots is to increase one’s profits. Bearing this in mind, one needs to find a bot that maximized their profitability. This might be a challenge, especially with each creating claiming to be the best in the market, with many boldly dubbing themselves as the most profitable project in the market. It is best to research various products before settling.
Once you have made some gains with your trading bot, then it’s best to spend it with a crypto debit card. It’s one of the cheapest and easiest ways to use your cryptocurrency by transferring crypto straight from your exchange or bot wallet, straight to your card! Some of the best include BlockCard, Crypto.com Card, and Coinbase Card. Always do your own research and find the card that’s right for you.