crypto trading bot

A crypto trading bot is a computer program that contains an algorithm of actions carried out in response to a certain situation on the market. Trading bots were created to free the cryptocurrency trader from repetitive, boring, and tedious work.

There are trading and arbitrage bots. With the help of trading programs, traders trade on only one crypto exchange. Arbitrage bots buy cryptocurrency on one exchange and sell on another, earning on the difference in rates on different trading platforms.

Trading bots can be fully automated or with manually changed parameters. Besides, robots can trade only certain pairs of cryptocurrencies, but most automated trading programs are universal.

Types of crypto trading bots:

  • Trading bots are traded based on user-selected indicators. These bots are highly customizable: you can use a combination of indicators to create your trading signals.
  • Arbitrage bots are used to profit from price differences between several exchanges. The essence of making money on arbitration is an exchange with a difference in rates. An arbitration robot for cryptocurrency is much more useful because it is more convenient for the program to find the rates. Therefore, it is much more difficult to find such bots. These programs often do not conduct transactions but only show the optimal direction of exchange for obtaining benefits.
  • Order bots are custom bots that are executed when certain market conditions unfold. You can combine them to automate trading strategies.
  • Scripts are the basic platform where experienced traders build their bots. Designed for large participants with sufficient knowledge and successful trading experience.

Bots are connected to exchanges via API. Further, data is collected, and orders are opened on their basis.

API (Application Programming Interface) is a set of information about the current state of trades and a set of functions that allow you to join trades according to specified parameters. 

How does a crypto trading bot work?

The simplest trading bots’ operation principle is that orders are automatically placed to buy when the currency rate falls and to sell when the rate rises. 

With advanced crypto trading bot, you can put a full-fledged trading strategy, which will take into account dozens of parameters and information from many indicators. The trader can reconfigure the bot if the market situation changes.

advanced crypto trading bot

The more complex the trading program, the more strategies a trader can implement. It follows that a sophisticated trading program can be used by an experienced trader who is well versed in the realities of the crypto market. On the contrary, the simpler the bot, the less variable parameters it has and the less a trader can influence the strategy, which makes the bot less flexible in changing conditions and, accordingly, less profitable.

Many crypto trading bots require investments: a one-time purchase of the program, a monthly subscription, the return of funds to circulation at interest, or a bot written by itself for the cost of your time. Moreover, trading bots will rarely make overwhelmingly good deals. In practice, a trader can make large profits on his own. But bots are not bad as trading  background since they will still bring some money.

Sometimes a bot is used to reduce losses and not just to make a profit. If the bot does not meet expectations, you can always choose another crypto bot or suspend it and trade manually, and then turn the bot back on.

Are cryptocurrency exchanges blocked for using robots? No, because they are interested in using them. A crypto trading bot will conduct many transactions; unlike a human, it does not need to sleep, go somewhere, it is not sick or lazy. And the exchange receives a commission from each operation.

Why use a trading bot?

  • Perhaps you are an inexperienced trader and are looking for a way to get into trading, but you need to analyze the bot’s behavior to develop in trading.
  • If you want someone to manage your exchange account while you are away or asleep, then money will make money without you.
  • If you are not prepared for the stress of looking at monitors all day, the bot provides rational and predetermined behavior patterns, making trading non-emotional.
  • You can trade on several exchanges in several pairs at once, which one person cannot do. Also, the bot places orders and finds signals faster,
  • Besides, the trading bot allows you to hedge part of the portfolio.

How to choose a trading bot?

All strategies are pre-configured in trading bots; they include a set of indicators with specified settings and timeframes. But at the same time, you can change any setting (there may be restrictions on the part of the developer, and you can partially edit the settings).

If the strategy is pre-configured, you need to understand which bot settings you can adjust. The first thing you need to be prepared for when trading on the crypto market is sharp drawdowns or a change in trend. The bot strategy should secure the deposit and positions in case of any changes on the market.

choose a trading bot

Before choosing a bot, make sure you understand:

  • Principles of strategy.
  • What settings and why will you change.
  • Availability of DCA mechanisms, trailing, stop-loss, shorts.
  • Backtests, paper trading.
  • Restrictions on traded pairs, exchanges, depots.
  • What insurance does the bot have? For example, the SOM (Sell Only Mode) mode, when, under certain conditions, the bot no longer buys coins but only sells. These can be triggers for a change in bitcoin price or closing several positions in a row at a stop loss or buying several positions in a row without a single sale. The insurance can also hold a certain percentage of the traded deposit in case of a sharp drawdown (for example, 30%) and other settings.

Test your bot before you start trading with real money

Some bots have a limited demo version with the ability to test the strategy. If you are a beginner trader, then this is your option.

Test the strategy for at least 2-3 months before concluding. The shorter the test period, the higher the risks. Unpleasant surprises would appear all the time, even if the bot worked for the first time without interruptions. Depending on the bot’s capabilities and order principles, the same strategy on a different deposit can give different results.

For example, a bot may not cope with an order above $2000- $3000. Therefore, gradually build up the volume and monitor the results. There is no need to rush.

Where can you get a crypto trading bot?

You have to find the one that suits your needs and is not a scam. Check the bot for some time and to see the results.

Some newbies believe that trading bots will trade smarter than themselves anyway. Besides, some professionals are looking for programs to get prompts or automate some of their actions.

There are three options for where to get a trading bot:

  1. Create your crypto trading bot. This method is the best because you independently decide which functions to include, which parameters will be taken into account when conducting transactions, and so on. Maximum of security: you know exactly what is in your code and how it works. However, this requires serious programming knowledge. Alternatively, you can attract freelancers or buy components for the robot; individual scripts are sold on forums and special companies.
  2. Buy a crypto trading bot. Developers offer their programs on forums. The choice is becoming wider. Some bots are created for certain strategies, they have almost no settings. The level of risk in terms of security is not the lowest, but it is better to check the code of the program that will conduct transactions. You can also buy a bot for trading on cryptocurrency exchanges from companies that specialize in such programs. There are different options to choose from. The cheap ones offer a minimum of settings. The expensive ones, on the contrary, are crammed with different functions.
  3. Free crypto trading bots. Why pay if you can download a free trading bot? Yes, there are many programs available for free, but if they work, it’s hard to imagine how high the chance of stumbling upon a fraudulent algorithm is. Do not even try to find free trading bots, except, for example, testing or evaluation.

Differences between test and live trading

When the bot is trading, it will try to process the fixed price, but the market moves some prices. This is called slippage. Some smart crypto trading bots have come to minimize this effect. But still, consider yourself lucky if you get the exact asking price at which the bot wanted to trade.

Trading bots can help traders always interact with the market, even if they are physically unable to do so. They also relieve stress and emotions that are often found in any financial trading market. However, trading bots are not for everyone. Ordinary people who sometimes sit on the stock exchange are not the main target audience for trading bots. A trading bot will also not be needed if you plan to hold the currency for a long time.

If you know trading strategies and sound judgment, then a crypto trading bot can be a useful tool to monitor and profit from a volatile market.

 test and live trading

Pros and cons of trading bots

AdvantagesDisadvantages
Saving time. Trading cryptocurrencies is a rather boring activity, consisting of routine, repetitive actions that need to be performed sometimes for a long time (and sometimes at great speed). If a robot performs monotonous actions, it greatly facilitates the trader’s work.Programming. The bot cannot go beyond the specified algorithm. This means that if the situation changes, and this is not included in the program, then the bot will operate at a loss.Automated trading programs perform better in standard situations. On long timeframes and in non-standard situations, where forecasting is necessary, bots will not compete with humans.
Speed ​​reaction. For example, in some situations, in a highly volatile market or when implementing high-frequency strategies, like scalping, a trader simply does not have time to react to a dynamically changing situation, unlike a bot.Technical analysis. Trading programs work based on technical analysis of the market, which assumes that everything that is needed for trading is in the price and its dynamics. But even the most advanced bot cannot do fundamental analysis, which means that it cannot change the strategy based on the changed fundamental factors.
Faultlessness in the implementation of the strategy. A robot programmed to act in a certain way in certain situations cannot make a mistake, unlike a human. This quality is especially valuable in the implementation of complex strategies, with the processing of several parameters.Unpredictability. Since the bot cannot predict the price situation, then even an exclusive trading bot developed for the customer’s requirements may be useless; this happens quite often in the cryptocurrency market.
Lack of emotion. A person is emotional, this is a fact, and even the most emotionally stable trader makes mistakes, especially during a rapid change in a trading situation or during a long trading session – but not a trading bot.The technical factor. Like any program, a bot can freeze, stop working for unknown reasons during trading.
Multitasking. You can use several bots for different exchanges, configure them to implement different strategies, experiment with different coins on different timeframes. All this, of course, can be done by the trader himself, but with the help of bots, you can do it faster.Commissions. When setting up a bot, you need to remember about exchange commissions. If you do not include a limit on the number of transactions in the algorithm, you will have to give the exchange an unacceptable amount in the form of commissions.
Security. This drawback is more typical for free or inexpensive programs, for bots of little-known developers. The danger lies in the fact that such a bot can earn a profit, not for its owner but, for example, transfer a small share of the profit to a third-party user.

Are crypto trading bots necessary for beginners?

Cryptocurrency trading takes a lot of time to master. It would seem that buying a high-quality bot will help a beginner to make money while he is mastering the market. It is rather a delusion since only a trader who has a clear idea of ​​what is happening on the crypto market can choose the right bot and configure it.

A bot can be a good assistant. It will implement strategies that a trader has developed and make mistakes that a trader would make when trading manually. For this reason, the bot does not live up to the expectations of newbies if they imagine the bot as a money-making machine. 

Cryptocurrency bots can significantly simplify trading and allow you to earn almost passively. Some programs support flexible configuration of parameters, allowing experienced traders to trade according to their own rules in 24/7 mode. For beginners, bots will be useful due to their integrated trading strategies.

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