What is a Bitcoin trading bot?
A bitcoin trading bot is an automatic trading algorithm that relies on varying market indicators and factors pertaining to the price of Bitcoin. The bot interacts with the actions of the market paying close attention to existing orders, trading volume, and price of an asset. Since bots can almost instantly detect changes in the market, they can just as quickly post buy and sell orders to maximize profit.
Trading bots themselves are nothing new and are well known in traditional trading markets as many hedge funds and capital groups utilize them. Naturally, they have made their way into the crypto sector and are currently growing in popularity.
Not all trading bots are made equal though, some are better than others. While these bots do a great job, they aren’t always fool-proof. Many trading bots still require frequent monitoring to ensure they are trading correctly according to an outlined strategy. A trading bot is only as good as its algorithm. A clear understanding of how markets work and what you want your bot to do are considered vital components in having a successful trading bot.
How do trading bots work?
Most Bitcoin trading bots operate through similar methods, the simplest being Arbitrage. This method causes the bot to buy assets at one price and sell them at another as often different exchanges and listings vary in price for the same asset. By exploiting the differences in price a bot can buy low and sell high making profit along the way. The amount of profit through this method is largely dependent on the volatility (price fluctuation) of an asset. Low volatility translates into smaller profits, but when large market fluctuations occur a bot can quickly make adjustments possibly translating into massive profit.
Another way bots can create profit is by market making, which is a series of continued buy and sell orders near the current market price which simulate organic market activity. The bot profits from the price spread between these orders automatically. This strategy relies on liquidity within the asset to be the most profitable and can prove to be unprofitable in assets or markets with inadequate liquidity.
Trusted Trading Bots
When it comes to cryptocurrency trading there are lots of options to choose from when utilizing a bot. Some better known bots available to use now are listed below.
3Commas is possibly the most well-known trading bot that has fully customizable features including stop-loss marking and risk management points that allow you to take profit when you see fit. This well-rounded bot is available on both desktop and mobile for those trading on the go.
CryptoHopper is another well-known trading bot that allows its users round the clock trading thanks to this bot running entirely on the cloud. After a simple 5 minute setup, Cryptohopper gets to work reading the market searching for buying and selling opportunities.
CryptoTrader is yet another option for those looking to use a trading bot that offers users a chance to build their own custom bot by setting parameters that the bots algorithm will work within. This platform allows users to create their own trading strategies as well as sell those strategies with other bot users.
Tools of the Trade
A trading bot is simply a tool within an overall trading strategy. While bots are extremely helpful they are not for everyone and should be part of a robust and well-thought-out trading strategy. Previous knowledge of markets, how they work, and programming can be massively beneficial in understanding how to best utilize trading bots.
When it comes to trading your own money one can never to too careful. Be sure to do your research when finding the best trading bot for your portfolio.
Also published on Medium.