What is Crypto Trading Bot: Is It Safe To Use?
Trading bot (or trading robot) is a program configured to perform repetitive actions. Crypto trading bot was built to free a person from mechanical and monotonous work. Crypto trading bot doesn’t differ from traders in any way: they are tuned for automated trading on crypto exchanges according to predefined parameters.
The simplest bots, of which the majority, buy cryptocurrencies when the rate falls and sell them when they grow. Crypto trading bot uses many additional data and place orders only if these data correspond to the indicators indicated by the owner. For example, they can “view” a chart of the rate of the cryptocurrency for the last N days and start buying it if the chart shows a drop in the price within 10-15%, but ignore the currency if the drop exceeds 25%. There are also complex bots that take into account dozens of indicators.
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How many types of cryptocurrency trading bots out there?
There are two main types of cryptocurrency trading bots – for trading and arbitrage.
Crypto bot for trading focuses on a preset exchange. He gains profits from buying currencies at a low price and selling them at a higher one.
In turn, arbitrage bots are the same crypto trading bots. Still, they trade within several exchanges, earning revenue by buying currency on an exchange where the price is lower and selling on another exchange where the price is higher.
How do bots for cryptocurrency trading work?
Crypto trading bot always act on strategy. A crypto bot strategy is a set of parameters on which it is oriented when trading. Sometimes it is manually set by the owner, and then the cryptocurrency bot strategy is essentially a trader’s strategy, integrated into the program.
The less configurable parameters a crypto trading bot has, the less it is possible to influence the strategy. Accordingly, the more settings are set, the more profitable the bot can be in the hands of an experienced trader. But there is also the reverse side of the coin: if a trader is inexperienced, a large number of parameters can confuse him. He may set such indicators, at which trading will be unprofitable.
Therefore, for beginners, crypto bots are written for the subsequent sale, often offering strategies with all the set parameters. There are strategies mimicking stock market strategies, strategies designed for specific currency pairs, etc.
Is it allowed to use a trading bot on a crypto exchange?
Owners of crypto exchanges are interested in automated trading because bots make a lot of trades, the commission is charged for trades, and commission is the earnings of the exchange owners. Therefore, they are allowed on most exchanges, for example, on Binance, BitMEX, Poloniex, FTX, and many others.
Where to get a crypto trading bot?
There are three general ways to get a cryptocurrency trading bot.
- Code it for yourself
Trading crypto robots are usually made for the crypto exchanges on which the trader plans to trade on. One of the main conditions the exchange must have a trading API.
API (Application Programming Interface) is a set of information about the current state of trades and a set of functions that allow participating in trading on specified parameters. The exchange itself provides these complexes. It is possible to construct the robot without API, but it will be longer because you will have to write the above. API is on many exchanges, and an attempt to write a robot for the exchanger without an API often makes no sense.
Arbitrage bots are written, respectively, with the parameters of several exchanges.
- Buy crypto bot
Bots are a relatively common commodity now. You can buy them both from companies that develop them and from individuals. Companies usually offer bots of different classes at different times at different prices. You can buy an economy package that will include the simplest bot for a month, or you can buy a luxury package that will provide a bot with a couple of dozens of strategies for untimely use. Of course, there are intermediate options.
Individuals create one or two or three bots at once, describe the underlying strategies with other parameters, and offer to buy for a fixed price. Scripts to create their bots can also be bought from companies and individuals.
All of these, of course, can be ordered individually – for a particular exchange, with certain rare parameters. Of course, the cost of a custom bot will be significantly higher.
- Buy a preset custom bot
The companies selling crypto bots usually do not offer a ready profitable strategy for trading. The best option is to buy a preset custom crypto trading bot with a built-in strategy for beginners. To make a consistent and profitable bot is a difficult task. There must be a reliable backtested strategy with calculated risks, with stop losses and take profit levels.
Usually, a strategy provider connects your trading account to bot via API, and you can see how the bot works through your trading account. But there are many ways of following the account. Some offer a custom dashboard to do this or use side service. An important thing to mention is you should never send trading funds for any service. The funds should be in control under your account, and the provider should execute orders via your account.
Pros and cons of using crypto trading bot
What are the benefits of using a crypto trading bot? Do the bots make a profit? Is it worthwhile to put them in? These questions arise in many people who are familiar with the concept of cryptocurrency trading bots. As with any phenomenon that has become relatively common, bots have their advantages and disadvantages. Here are the pros:
- Time. Trading takes a lot of time. On peak days, it could take 10-15 hours. Robots get rid of this completely or partially. Moreover, they can work 24 hours a day without breaks.
- Coverage. Hundreds of cryptocurrencies and at least dozens of exchanges that make sense to trade. A person cannot physically cover all this manually. A trading robot can. Or several robots running on different exchanges.
- Speed. While a person thinks, remembers formulas and calculates proportions, the robot will have time to calculate several times more, issue a buy/sell order, and make a deal. That is an important advantage for robots when the price of currencies is rising or falling rapidly.
- Availability of strategies. A robot can turn out to be “smarter” than an inexperienced beginner, save him from significant monetary losses and bring him a profit, which a beginner at first could not get on his own.
- Accuracy. Robots with accuracy to each sign in the formula carry out the set strategy. A person can miscalculate something, wrongly set it, wrongly, finally see and deprive himself of profit.
- Emotionality. Robots do not rush when trying to decide on one extreme to another, do not lose time because of doubt, do not get nervous looking at the course – in contrast to their owners.
It would seem that there is nowhere better, but there still some cons of using bots:
- Extreme conditions. Even the most complex crypto trading bots are unable to perform fundamental analysis, evaluate each case, and do much of what makes an experienced trader profit. Abnormally huge volatility with a drop of 30% could lead to losses on most bots without well-executed money management and risk system.
- Commissions. A poorly configured crypto trading bot might cut profits if the fees didn’t calculate well. The best option is to trade on exchanges with positive maker fees and earn commissions for placing orders ( for example, BitMEX got a 0.025% maker fee).
- Black swan event. API and internet blackout. If there is a problem with the connection on a bot or exchange side, it’s impossible to execute a trade. When such conditions met during periods of huge volatility, it could lead to significant losses. It is not only important to get a 24/7 working robot, but there should be no issues with API connection on the crypto exchange side.
Is a crypto trading bot suitable for a beginner?
A beginner usually makes a lot of mistakes in learning to trade. Over time, he notices the patterns, learns, and if he reads the relevant literature, he becomes a good player and increases his income. Then he moves to other levels, the profit increases in proportion to the trading volumes. That requires a lot of time and effort, and even if you are experienced enough, nothing will save your time except help from a crypto trading bot.
On average, with a favorable layout and the right settings, the bot’s income is about 50-70% per month, may rise to 100%, but may even fall to 20%. Either way, we’re going to have to cut it out of the profits, the bot’s costs, electricity costs, and commissions.
With a small investment (say, $10-20), the bot will not pay off for a long time if it is provided to the user forever, and may not pay off at all if the subscription to it is monthly. With larger attachments (e.g., $1,000), a trusted bot is likely to pay off and profit.
But there is a problem with finding a reliable bot. Find a bot that would not be the next development of fraudsters, would work well and smoothly – a non-trivial task. It is easy to make a mistake, not once or twice, before you can find such a program.
And finally, the most reliable bot will bring a good profit only if the strategies are periodically reviewed and reconfigured, which again leads to the need to understand trading and what the bot does.
Where to get a time proven crypto trading bot?
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