What is a Trading Robot in Cryptocurrency?

Crypto trading bots are automated software able to generate and submit trading orders to crypto exchanges based on the trader’s previously inputted technical criteria. With the right settings, a trading bot can help increase revenue, reduce risk, and decrease losses across exchanges. Above all, crypto trading bots allow for around-the-clock crypto trading, optimized through facts and patterns rather than emotions.

Types of Bots

Some of the most frequently used trading bots are as follows:

Grid bots

Grid bots are incredibly handy tools as far as automated trading goes, and they are great for beginners, too. To program this kind of bot, the trader creates a number of ‘grids’ that are set up with upper and lower price thresholds for a certain coin. Once activated, the grid bot is able to execute a series of interchangeable deals, thus accumulating profit in increments. 

Arbitrage bots

An arbitrage bot analyzes coin values across a number of different exchanges in order to execute automated transactions that generate revenue from price differences. A Bitcoin arbitrage bot might spot that BTC is selling for $100 more per token on Pancake Swap than it is on Coinbase. It would then purchase BTC on Coinbase and swiftly sell it on Pancake Swap for a reasonable profit.

Trend trading bots

Trend trading bots analyze the price movement of a certain asset and then execute buy or sell orders based on its momentum. If the trend indicates an increase in price, the bot will be in a long position. Conversely, if the value drops, the bot will enter a short position. Simply put, trend trading estimates that an asset will continue to move in the same direction, which is how trend trading bots generate profit.

How Do Trading Bots Work?

So, what is bot trading really? Crypto bot trading is based on algorithms that are able to quickly perform in-depth data analysis on crypto trading platforms while adhering to a set of predefined rules entered by the trader. The automated software will follow the market non-stop and automatically place orders to buy or sell, effectively allowing the trader the freedom to do other things instead of being tied to their chair all day staring at market charts in order to spot price movements.

Pros of Using Automated Trading Software

There are several ways in which automated bots for cryptocurrency can enhance your trading strategy and outcomes:

• Round-the-clock trading. Cryptocurrency trading bots work around the clock, seven days a week, making potentially profitable choices for you even while you sleep — they will never pass up a good chance.

• No emotions. Because the crypto market is highly volatile, some traders can sometimes panic or even grow overconfident. Over time, emotionally charged trading can lead to bad judgment calls. One of the key advantages of crypto trading bots is that they have no emotions tied to the cash involved.

• Fast reactions. Given that the crypto market is so unpredictable, taking too long to complete a transaction may be unfavorable for the trader. Because crypto trading bots place rapid orders, the chances of missing out due to hesitation or general human error are considerably decreased.

Downsides of Using Cryptocurrency Bots

These are some of the pitfalls you should keep in mind (and try to mitigate) when utilizing trading bots:

• Absolute reliance on bots. Some people fail to understand that trading bots are not the be-all, end-all solution. Frequent tweaking of inputs and manual intervention are not only complementary to the process, but actually a necessary part of it if you wish to avoid losses and risks. 

• Potential security risks. Crypto trading bots execute trades using APIs, allowing them to operate autonomously. While hackers typically avoid blockchains as they are generally well-secured, they may target bots and coin exchanges instead. You may limit your risks by disabling automated withdrawals and keeping your API credentials private.

• Internet-dependent. If your internet connection fails, an order may not be communicated to the exchange. You might not even realize that your bot is unable to execute trades for a while, thus potentially missing out on several great deals.

Conclusion

Do crypto trading bots work? The short answer is yes, and the long answer is this: traders may get amazing results with automated trading bots, especially if they know how to tweak them to suit their trading preferences and monitor them to gauge where and when those tweaks should be made. 

Many established and reputable trading platforms offer demo versions that can simulate the automated trading process without the use of actual money. Moreover, some crypto platforms have an integrated social network element to them, where you can follow and explore other successful traders’ strategies and use them to tailor your own.

Ultimately, as with all things crypto, it is crucial that you read reviews, research the developers behind the tool you plan to use, and ensure that you have made a safe choice to avoid potential losses.