Time does not wait for anyone, and the financial markets are no different (1). In the unknown territory of crypto exchanges, success depends on keeping up with quick price changes. There are many cryptocurrencies, many viable trading strategies, and a variety of tools available to new traders, all of which may be confusing because there are so many cryptocurrencies.
Even if technology has made it feasible to automate several trading tasks, such as market analysis, trend forecasting, and order execution, this liberates more time for strategic planning and laying a strong basis for long-term crypto exchange success.
So, what is automated crypto trading?
Automated crypto trading, also referred to as automated cryptocurrency trading (also known as crypto trading bots), is the act of using computer programs to buy and sell digital currencies on one's behalf. These software programs are made to respond to market changes to trade at the best time.
The uncertainty and emotion associated with manually buying and selling cryptocurrency are also eliminated. Even though some more recent cryptocurrency bots work directly on the blockchain and use smart contracts, most automated cryptocurrency trading platforms still use APIs (2).
What is an API?
The term "API" refers to an application programming interface that enables a user's account to communicate with a cryptocurrency exchange so that it can open and liquidate positions on the user's behalf by predefined criteria.
Bots may operate continuously without taking breaks, and because they are emotionless, they will always stick to their game plan and follow any new market trend or event as soon as it occurs. Automated crypto trading offers various advantages over manual trading.
The most well-liked arbitrage (3) or grid trading (4) bots are among the various types of cryptocurrency trading bots that are accessible; each one varies in terms of features, functionality, and pricing. While grid trading is centered on the buy low, sell high strategy, arbitrage bots take advantage of price disparities on other exchanges.
Different automated cryptocurrency platforms have different features, such as the hold function on 3Commas (5), which allows users to buy and hold cryptocurrency automatically by buying at lower prices and trading. However, it is up to the user to select the cryptocurrency they desire, and a bot can help them accomplish that.
Four steps of automated crypto trading
The four steps of automated cryptocurrency trading are as follows:
Data is the key to success in this tech-driven era, which is why crypto trading bots require data analysis. Machine learning-enabled software can carry out data mining activities more quickly than humans.
Once the data analysis is completed, a bot executes the trader's tasks by finding potential trades and forecasting market movements using market data and technical analysis indicators.
These rules often specify how and what percent of funds will be placed when trading. At this point, the bot decides how to disperse risk across various assets depending on established parameters given forth by the trader.
Execution is the process by which cryptocurrencies are bought and sold in response to signals produced by the pre-activated trading system. The signs will produce buying and selling orders sent to the exchange via its API at this stage.
Are crypto bots profitable?
Algorithmic trading bots have completely taken over the financial sector, and today algorithms control the majority of Wall Street activities (6). In addition to trading cryptocurrency, algorithms are now used to buy and sell equities, bonds, and foreign exchange.
Simple bots' ability to make choices more quickly than humans and their lack of emotional bias allow them to stick to their trading strategies even in choppy market conditions is another major factor in this transition. Also, remember that crypto trading bots are not faultless and cannot eliminate dangers.
However, they can automate trading processes to assist novice and seasoned traders in making a profit. Still, to effectively design a bot, it is essential to have a fundamental knowledge of the market and the rules and resources related to trading.
What is the price of a crypto trading bot?
While some cryptocurrency trading bots are free and others can cost several hundred dollars per month (7), it all relies on the capabilities and functionalities a consumer is searching for.
Is cryptocurrency automation legitimate?
In any country where cryptocurrency trading is legal (8), using a trading bot is not against the law. Using bots in the traditional financial sector is relatively frequent and well-regulated.
A bot is just a method of trading that does not require a person to conduct the transactions manually, and it is not against the law either. Machines currently carry out a significant portion of stock trades; the same is true for cryptocurrency trading.
There are a few restrictions to this, though, as some cryptocurrency bots are outright scams and others use dubious methods that might be considered unethical or illegal. Examples of this include sending users to an unregulated broker who might take their money without providing any service, and these bots operate potentially outside the law.
Pros and Cons of automated crypto trading
Although the influence of automated bots depends on several variables, such as the platform and bot utilized as well as the users' level of competence and experience, the pros and cons are classified as follows:
Supervision is required
Preserving one's trading ethics
Enables handling of numerous accounts
Might perform weakly
Is it safe?
Automated cryptocurrency trading (9) can't just be set and forgotten about, and hope to handle market volatility and protect traders from losses properly. Instead, its safety depends on the system's architecture and whether trades are routinely checked.
By streamlining procedures, enabling hassle-free trading around the clock, and being inherently dispassionate, they may be a dependable tool for making cryptocurrency trading easier. They may also assist prevent bad decisions that result in financial losses due to human mistakes.
Conduct thorough research on the initiatives and platforms, and always pose questions to clear up any uncertainties before making any payments or depositing funds into a trading account. Otherwise, one risks losing money.