It is a well-known fact that cryptocurrencies are highly volatile. Of course, that could be either a bad or a good thing, depending on the point of view. Actually, it is the volatility what makes cryptocurrencies a popular asset for short and long term investments.
One of the popular ways to make money from digital currencies is trading. Crypto market has no closing time, it is open 24/7, so traders can be on track all the time. However, manual trading is an energy and time-consuming process. Of course, there is a solution to the problem - cryptocurrency trading bots.
What are crypto trading bots?
Trading bots are computer programs made to trade cryptocurrencies automatically. They work 24/7 and are way more accurate than manual trading, as they are not moved by greed or fear. Actually, over 70% of the overall crypto trading volume is undertaken by bots.
One of their main benefits is that they are able to monitor multiple exchanges at the same time, trading according to predefined rules.
How do crypto bots work?
Crypto trading bots analyze data, predict risks and make calculations for buying and selling assets. As we already mentioned, their actions are based on predefined rules, so they trade when certain conditions are met on the market. Most of them are connected directly to cryptocurrency exchanges, watching the market and waiting for certain price changes. Some bots are also able to take into account historical data, so they can make more accurate decisions.
Types of cryptocurrency trading bots
As you may guess, crypto trading bots are highly customizable, and their algorithm can be set based on your investment plans. Some of the most popular types of crypto bots are:
Arbitrage bot
This is one of the most popular trading bots, comparing prices across exchanges, and making trades based on price discrepancies. They use the volatility of the market, and can be used for automatically setting Buy and Sell orders.
Trend trading bots
Those types of bots consider the momentum of a particular asset, before executing a buy or sell order.
Coin lending bots
These bots let you lend coins to margin traders that will later be returned with interest. With them, you can spend less time scouting for the right interest rate, and you can get better rates.
Crypto trading bots main components
There are different types of trading bots, but most of them have similar main components. Here are some of them:
Data analysis
Trading bots actions are based on specific data. They use a module to save raw market data from different sources, so they can later make a decision about buying or selling. Most of the crypto trading bots allow customizing the types of data that go into the signal generator sector.
Market risk prediction
This is a critical part of the crypto trading bot, as it uses the market data to calculate the potential risk. Using this information, the bot can decide how much to trade.
Buying or Selling the asset
This module uses APIs to buy or sell cryptocurrency assets based on a given strategy.
Advantages of crypto trading bots
In short, crypto trading bots are way more powerful than manual trading, as they can handle bulks of data and make plausible conclusions. That makes them efficient for trading, as you don’t have to worry about delays or human errors. Furthermore, they can trade 24/7.
Last but not least, crypto trading bots don’t make decisions based on emotions. They don’t have fear of loss or greed of profit, which makes them a useful tool for beginners who are not able to manage their emotions when trading.
Disadvantages of crypto trading bots
Of course, crypto trading bots also have some disadvantages. When working with a highly unpredictable market, they can not be 100% perfect. Programming errors could occur and can impact their efficiency.
Before jumping into using trading bots, you must have a deep knowledge of the market as well as an investment plan for the utilization of a crypto trading bot.
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