In the crypto world, earning profit primarily depends upon how quick a person makes a deal for digital assets. It’s not just about big losses, even a minor loss can bring noticeable damages to the finances. This is where cryptocurrency trading bots come in. Designed with advanced algorithms, these trading bots are intended to facilitate every single trader be it a beginner or a professional. They have got a unique position in the cryptocurrency market and are expected to facilitate users with their best.
- 1. Introduction to Crypto Trading Bots
- 2. Advantages
- 3. Disadvantages
- 4. How to Use Crypto Trading Bots?
- 5. What is the Best Crypto Trading Bot?
- 6. Best Crypto Trading Bots
- 7. Do trading bots actually work?
Introduction to Crypto Trading Bots
Referred to as the programs for cryptocurrencies, these crypto trading bots are responsible to automate trading assets on traders’ behalf. Typically, a trader or an investor has to sit in front the system and manually pick which cryptocurrency to deal in. Here, he/she will have to analyze the market scenario and trends followed by identifying the right time to exchange them with another digital asset.
On the contrary, with the help of crypto trading bots, the analysis is automatically done and market statistics are interpreted. They are capable of gathering market data, develop their interpretation, evaluate the market risk and suggest the right time to make a deal. For instance, a crypto trading bot can be set up for Bitcoin purchase to notify whenever their price goes down from a specified limit.
With such facility, it’s quite easy to save time as well as efforts. These trading bots work more like a third-party contractor who is responsible to carry out crypto trading on his/her clients’ behalf. Here, the worth mentioning fact is that these trading bots are cost effective as compared to human resources.
Types of Crypto Trading Bots
Considering the scope of their use, gurus and experts of the crypto world are introducing new and better trading bots every now and then. One of such famous boots is the Arbitrage bot that is used to analyze prices on the exchanges so that traders can respond immediately and bring the best out of discrepancies in the prices. Considering the fact that prices of cryptocurrencies, like Bitcoin, vary from one exchange to the other, trading bots emerge as a time-saving option where they can get this job done within a short time period. These bots are particularly ideal for crypto exchanges that take some time to update their database.
Other than that, CoinCasso has some historical price data bots that test trading strategies and provide investors with theoretical information. Some of their bots are also designed to carry out trades at specific signals like trading volume or price.
How do Trading Boots Work?
Considering the fact that all cryptocurrency trading bots are intended to assist in cryptocurrency trading, following key components have to be at their best:
- Market data analysis: This module is responsible to collect raw market data from as many sources as it could and analyze and interpret it for traders’ assistance. It helps them to make a decision of buying/selling a particular digital asset. There are some crypto trading bots that let users customize the type of data that is being analyzed.
- Market Risk Prediction: In this module, market data is used to analyze and calculate the risk in the market. The bot guides on how much to trade or invest during a specific time period.
- Trading of the Assets: With the help of APIs, this module assists in the buying or selling of crypto assets. Sometimes, it would not suggest you to buy tokens in a huge quantity while in some scenarios, it would recommend to invest immediately.
Here are some of the characteristics that make trading bots worth the investment:
- Efficiency: In the crypto world, trading with these bots has a huge impact on the results. The best part is that there is nothing like human errors or delays because these bots work on particular algorithms and modules. All they need is the correct information and appropriate algorithms in order to be rest assured about grabbing opportunities to earn profit.
- Emotionless: Since crypto trading bots work on algorithms and modules, their decisions are not affected by emotions. They used to make decisions on the basis of data available. Unlike humans, they work equally for all types of traders– be it a beginner or an experienced one.
- Powerful: A human mind can process a certain amount of data at a time. However, even if it analyzes the entire data available, it would be extremely difficult for the mind to come up with an insight or decision. On the other hand, trading bots can effortlessly analyze and handle data in bulk and reach on conclusions right away.
Just like the crypto world has some flaws, these cryptocurrency trading bots have no exceptions. Considering that they are working in the unpredictable crypto markets, they have to deal with a number of unexpected scenarios.
The current pandemic is an example that has affected the entire world so badly that even developed countries are struggling. They can cause unexpected events within the economy, which can only be resolved with the help of a strong psychology-driven strategy to turn situation in traders’ favor.
Likewise, programming errors has a lot to do with encountering problems in the trading bots. It is, therefore, necessary for traders to pay extra attention on bot’s condition and actions because they might not yield desired results no matter how much efforts they have put.
Is it Legal to Use Crypto Trading Bots?
Yes, just like cryptocurrencies, trading bots are legally being accepted across the world.
How to Use Crypto Trading Bots?
There are two ways with which, users can start trading with the bots:
- Use a Crypto Trading Bot: All traders have to do is to choose an appropriate trading bot from the market and integrate it with their crypto exchanges to start trading. They will be charged a fee either monthly or according to transaction commission.
- Create a Trading Bot: In case of not getting a desired trading bot, traders can also create on their own. It will have customized controls and results. They can either make from scratch or land on a trading platform that can help to customize features in the existing bot. Whatever be the selection, programming should be done as per the trading strategy.
Are Crypto Trading Bots Profitable?
If a person is new to crypto bots and need help, he/she can consult either with someone in the surrounding who have used them or a professional to receive complete guidance.
According to feedbacks from different users, it has been concluded that every person has had a different experience- some mentioned that all commercial bots (that were tried) made the person to lose money, instead of making profit, no matter what setting had been done. They suggest new traders not to get themselves into this hassle as it would not meet their expectations.
So, is it really true? What were the scenarios that made those people pass such statements about trading bots?
To begin with, it’s quite practical to say that algorithmic trading has always been one of the finest ways to earn profit. But, the thing to worry about is that there is a huge disconnect between the hackers and knowledge/ database of the investors. There are a lot of public-facing forums that claim themselves to be performing technical analysis in order to provide traders with an insight about the extent and severity of the problem. Still, there is uncertainty everywhere.
What is the Best Crypto Trading Bot?
Before finding out the best trading bots, it’s important to identity the need and reason behind it. They could be countless; all traders have to do is to know why they want a trading bot:
Reasons to Use A Crypto Trading Bot
- Assistant in Repetitive/Boring Actions: One of the irritating things about this crypto world is the repetition of actions. For a person, who has a 9 AM to 5 PM job, it would be quite difficult to give enough time to the crypto trading. This is where a crypto trading bot comes in. It can be programmed to perform those boring and repetitive tasks automatically while traders can focus on other interesting elements of online trading. One of such repetitive actions is to rebalance the portfolio and investing time to search the low risk exchanges.
- Timing: Time has always been an important element for all types of businesses. Good trades usually take a few seconds to happen, meaning that, if not responded timely, the opportunity might be missed. Upon getting a bot, it would be easy to grab all such opportunities without investing hours. It will help traders to connect with as many trading opportunities as possible, thereby increasing the chances to earn profit.
- Fickle Process Simplified: It takes a lot of experience and time to efficiently implement highly efficient and low-risk strategies. With the help of a trading bot, there is no need to wait to gain experience because the bot can bypass it easily. It can simplify the process and would help the trader to reach his/her goal within a short time period.
Things to Consider
- Reliability: One of the important things to remember while selecting a trading bot is its reliability. It must be capable of performing trade around the clock. If a bot stays offline for a long time or encounters glitches, then opportunities will be missed.
- Security: Considering the fact that cryptocurrency exchanges and trading bots are prone to hackers’ attacks, try to search for bots that have a high level of security. Make sure that the developers behind the bot are legitimate and credible and can manage a huge members’ community with 100% privacy and security.
- Convenience: Not every individual has got the skills and expertise to handle technical things for the first time. The same goes for crypto trading bots whose interface has to be simple and easy to understand so that traders can handle buying or selling or digital assets effortlessly. Customer care is another element that facilitates users to understand and solve every problem arising during their use.
- Profitability: As a matter of fact, the bot has to be effective in achieving profits. What traders have to understand is that not all trading bots are efficient and useful; their rate of success is what decides their position in the world.
- Price: Most of the bots have significant price tags that users have to pay in order to avail their services. There are quite a few that don’t charge anything. It is, therefore, important for users to evaluate which bot would suit their needs and whether it would be worthwhile to invest in them or not.
Best Crypto Trading Bots
Now that it’s clear why and how to select a trading bot, it’s time to look at some of the best crypto bots:
Trality: For Beginners as well as Advanced Traders
Designed to facilitiate every individual who is interested to take advantage of super-creative and highly intricate algorithms with a community-driven, educational infrastructure that enables traders to learn and develop new skills. This trading bot is one of the best crypto trading bots for people who are new to advanced trading algorithms and need assistance to make their career in crypto trading. The developers have introduced a state-of-the-art tool named as Rule Builder, which is a graphical user-friendly interface that assists in developing trading bot’s logic with the help of strategies and indicators.
For advanced traders, a feature called Code Editor is available that is a brower-based feature and support Python coding. It enables traders to utilize their knowledge to develop better and advanced strategies with minimal efforts.
3Commas: Perfect for Advanced Options
This bot is perfect for traders or investors who are well aware of the crypto market and need advanced features to make themselves standout among others. 3Commas facilitates traders with some sophisticated features and settings. Its Smart Trader terminal feature allows traders to keep an eye on the currency exchange rates as well as Trading View signals simultaneously. Also, they will be able to earn profits along with protecting themselves and their investment from stoploss signals. The next amazing feature of 3Commas is its association with 23 cryptocurrency exchanges where users can refine their investment strategy and take advantage of its paper trading functionality.
Cryptohopper: For Consistent Connectivity
There is no denial in saying that the crypto market is moving continuously where missing out chances even for a second can cost a lot. In this situation Cryptohopper has emerged as the best trading bot because it works 24/7 and uses cloud storage to host its services. Traders are rest assured about no downtime facility while don’t have to wait while the bot is updating. It offers an intuitive and easy setup process and integrates social sentiments among the investors so that they can refine their trading strategies.
Pionex- For Low-Cost Access
For every first time user, it’s quite common to think that whether he/she can purchase a monthly package or not. While some gather the courage to invest their money, others try to search for such options that can let them do it without spending money. Pionix is one of such trading bots where traders can do it effortlessly.
This is the world’s first crypto exchange that has a built-in crypto trading bot, which means that traders can buy and sell their digital assets whenever they want. All it takes in 0.05% as the fee to use the platform and provide a wide variety of bots to choose from.
Bitsgap: For Backtesting
For those who are searching for an all-in-one stop, Bitsgap is the ultimate option. Its cloud-based application identifies new trading opportunities in the market and notify traders whenever they are available. Its backtesting feature is ideal to make custom strategies because it enables traders to set bot parameters hypothetically and let them decide on how they are supposed work with the historical price data and current market conditions.
Do trading bots actually work?
To begin with, it’s necessary to know that a sophisticated crypto trading bot has 3 moving parts that set its standard among other bots:
- Signal Generator: This part of crypto bots is responsible to make predictions. It stores and analyzes data and sends out buy and sell signals. Here, one thing should be kept in mind that if any bot is working on technical indicators, then avoid making eye contact with it.
- Risk Allocation: This part takes the signal and makes a decision about how much to trade with. It explains whether a trader should invest the entire capital or a small part of it.
- Execution: Once the trader makes a decision about the trade, it’s quite easy to execute trades. If many traders use the same bot to do trading and don’t even stay in touch with each other, then they are more likely to get unfavorable pricing. So, it’s better to invest some time and choose the right bot.
Difference Between a Human and a Trading Bot
Needless to say, a human and a trading bot are opposite to each other. They hold a lot of difference; some of which are discussed below:
- Longevity: Bots can work non-stop i.e. 24/7 while a human needs rest to refresh the mind.
- Speed: Since robot work on certain algorithms, programs and software, they tend to operate magnitude faster as compared to human. They take some time- from thinking to reaction.
- Emotionless: Robots do not have fear or greed. They work on statistical analysis and therefore, are more likely to get into a win-win situation.
- Capacity: It’s quite easy for trading bots to process gigabytes of data in seconds while humans need time to do the same.
All in all, it can be said that crypto trading bots are of great essence because of the skill set they possess. They always get an edge over humans due to their monotonous and consistent nature. They keep traders on the right track and make sure that they always remain in a profitable situation.
Though, what every trader has to remember is that a bot can only be a good creation until and unless a human has created it properly. There are a number of ways with which, the bots can be outperformed and that too on the basis of subjective thinking.
Different Algorithms That Keep Trading Bots Working
Practically, crypto trading bots used to be created on two types of algorithms. They are usually applied in different ways and therefore, have been known with a new name every time.
- Momentum: Prices are increasing and it is speculated that they will keep on rising- outcome, make a purchase or vise versa. Based on statistics, momentum strategies do not have a high winning rate but, when they do, their gains are significantly large.
- Mean-Reversion: Prices are increasing but they will pull-back soon- outcome, sell or vice versa. Men reversion strategies have proved themselves to be worthwhile with a high winning rate. However, their ratio between gain and loss is quite small.
Here, most of the people miss out on one thing- fees. This is one thing that has a great impact on a trader’s profitability. Precisely, the transaction fees (charged by the exchange) and trading fees (bid offer) have a significant impact on how much the crypto trading bot earns profit. Exchange fees may differ according to the bot’s nature i.e. whether it is a liquidity maker (active) or liquidity taker (passive).
The key characteristic of efficient algorithms is their ability to manage active-passive trading ratio along with how they make trade across multiple exchanges. This decision usually depends on the optimal transaction cost.
Filing Tax for Crypto Bot Trading
After a trader has chosen a bot, designed and programmed its strategies and got the results, it’s time to think of filing tax on those successful transactions. While these bots are responsible to trade on their owners’ behalf, data has to be imported from exchanges to cryptocurrency tax software. The reason behind is that traders have to report cryptocurrencies in order to file their taxes.
Here, the frequency of trading bots to make trades should be considered- some have a high frequency i.e. they can make hundreds of traders per day. When this frequency is reported, there would be some complexity in tax calculation because of the wrong bot strategy. So, what traders have to do is to apply passive crypto trading strategy, things would be easier to handle than before.
Last but not the least, crypto trading bots have turned out to be one of the significant inventions in the crypto world. No trader can be sure about winning a trade without their help (to get more information on this, log on to https://coincasso.com/). It is, therefore, necessary to do sufficient research on these trading bots and come up with an option that meets the requirements and has all the features as required.