Blockchain technology seems to have incorporated into almost every sphere and made its presence felt. Today it’s hardly possible to come across someone who hasn’t heard this buzzword. Blockchain has hit a myriad of headlines and influenced a number of industries in a very positive way. It continues to open up many more opportunities to its users and conquer universal recognition.
One of the most striking innovations that have recently started looming on the blockchain horizon is the cryptocurrency trading bot. As you know, cryptocurrencies are experiencing a tremendous rise. They’re regarded as one of the most successful innovations of our times. Trading cryptocurrencies has sparked investors’ interest to such an extent that they feel like leveraging the latest blockchain tech to boost their performance. That’s why they’ve already given their priority to cryptocurrency trading bot.
What is a cryptocurrency bot?
Crypto trading bots are viewed as automated computer programs, which are capable of purchasing and selling cryptocurrencies at the right time. They assist their users in generating maximum profits. They monitor the market and provide responses based on the predetermined rules. Cryptocurrency bots prove to be extremely helpful in trading cryptocurrencies without involving humans in the process. These bots can function 24/7 non-stop and take up to thousands of decisions within a short period of time. They’re based on a set of algorithms, which they utilize when carrying out automated trades.
Apart from speedy performance, bots display no emotions, which helps eliminate any possibility of disruption during the process. They simply follow their pre-set algorithms and do what’s required. Additionally, they experience no stress and fatigue — the factors that may worsen human productivity from time to time.
Types of cryptocurrency trading bots
There’re four main types of cryptocurrency trading bots. Each of them comes in really handy when dealing with repetitive tasks. Additionally, these bots excuse many human factors, which leads to better and fair performance. Below there’re four types of bots, which are widely used today:
A crypto arbitrage bot is a set of rules based on the market conditions. Provided that all of the conditions are met, the bot can get down to carrying out trades without involving humans. Crypto arbitrage bots are programmed in such a way that they’re able to spot some mismatches in pricing among various exchanges. Depending on the type of arbitrage, they may follow different strategies to fulfill the trader’s intentions.
Market making bots
A market making bot is an automated computer program. It can execute cryptocurrency buy and sell orders at the right time without human intervention. Just as the other bots, a market making bot aims to bring profit for individuals by means of following predetermined conditions. Given that a bot is devoid of any emotions fatigue and stress, any possibility of making a mistake (due to a human factor) are eradicated. Besides, a crypto market making bot is also never emotionally attached to the price of a token.
Technical trading bots
Technical trading bots are considered to be one of the most popular and widely-used bots today on the market. They are used as indicators, which predict future prices and use the collected data to gain profit.
Portfolio automation bots
Portfolio automation bots intend to assist their users in creating, obtaining, and maintaining their required/wanted portfolio. A number of users give their priority to this type of bots just because they enable humans to automate many mundane routine tasks. What does it take to create a cryptocurrency bot?
Though the process of “assembling” the bot may seem a bit time-consuming in the beginning, you cut down on time expenditures substantially during the operational processes.
First off, traders are to collect data on pricing using popular aggregators and exchange APIs. The gathered data should be carefully analyzed so as to provide you with detailed insight into favorable opportunities for trading. The next step to take is to automate your strategy and make sure that trades’ entry and exit time is minimized to the extent possible. In the end, it’s important to integrate a scope of pairs and exchanges into the strategy so as maintain a high level of variation throughout the processes.
How to reduce risks when designing strategies
Mind that you always run the chance of having some irregularities when collecting data, which unfortunately can lead to mistakes on your part. That’s why you’re highly advised to spare time to check whether everything has been done correctly.
Additionally, to prevent yourself from unnecessary losses, keep all charges connected with conducting trades and making transfers minimal. It ensures that you’ll be able to benefit from the difference in prices.
Don’t forget that there’re some cryptocurrency exchanges that impose larger fees for withdrawals than networks’ blockchain costs. They may entail more confirmations than many other cryptocurrency wallets.
Aspects to consider
Effective trading involves many things to think through in advance. You’re bound to gain a lot of profit from automating your processes with trading bots on condition that you take into account many significant aspects.
If you’re going to utilize a cryptocurrency bot for the first time, you should remember that you’re supposed to determine your own clear strategy, minding various risks and rewards. Besides, to avoid any damage to your personal investment, try to keep volumes as low as possible when handling a very volatile pairing. Furthermore, good trading implies your ability to manage finances wisely — so, don’t forget about this point as well.
As you might have noticed, cryptocurrency trading platforms have greatly contributed to enhancing a number of tasks. They prove to be really quick, show great performance and eliminate a number of unnecessary human factors, which might hinder the performance during crypto trading. In other words, a cryptocurrency trading bot can become your good partner who will be able to carry out a lot of duties for you.