The emergency and skyrocketing of cryptocurrency has led to the emergency of crypto trading and exchanges. Crypto exchanges are platforms that use technology to help them stay ahead of the curve as well as traders who help them trade successfully.
Generally, crypto exchanges depend on three main algorithm trading options, namely:
- API-based terms: This algo uses API keys, though link to several other exchanges concurrently. They are used to enable faster deals by opening up to multiple markets from just one spot.
- Automated bots: This option is based on high-tech applications that trade on the behalf of a trader. They link to cryptocurrency exchanges using API keys, complete orders instantly by following market conditions. There are two main types of bots, namely preset and customizable.
Preset bots are usually hidden and crypto traders can’t alter them. In this case, developers provide sufficient information about trading rules and conditions.
In customizable bots, investors are allowed to set or change their trading strategies.
Moreover these algos differ significantly based on strategies used. For short or long trades, for day trading or trend trading, for arbitrage, for scalping and so on.
- Hybrid solutions: This algo blends features of terminals and bots and supports automated trading across several markets. These are also known for being the most efficient Algo crypto trading but tend to require high levels of skills from developers.
Cryptocurrency traders on the other hand utilize algorithmic trading to create preconditions to keep tabs on their investment portfolio as well as for buying and selling crypto assets, meaning that they or computerized applications they use can implement trades at a higher rate, thus making more earnings at an accelerated speed.
Algorithmic cryptocurrency trading is slowly becoming popular among retail traders since it helps them maximize their chances for success as well as guarantee them that the algorithms are used effectively by their computers or created platforms.
Algorithmic cryptocurrency trading has massively reshaped the world of cryptocurrency for both traders and exchanges. These two are making the most of the efficiency and speed of algo trading for daily trading. Crypto traders are also maximizing the potency of the different algorithms that they use, thus algorithmic crypto trading is used to make better nearly all aspects of cryptocurrency trading process, including trade execution market data analyzation.
Crypto trade bots
Algos are usually deployed in crypto markets in the similar way they are used in derivatives markets. By incorporating algorithms, it becomes possible to create a methodical trading structure that provides a lot of benefits to the market while massively reducing the chances of trader error. With bots, trades for tokens and coins are now automatically executed based on the predetermined conditions.
In its simplest form, trading bot is a program created to communicated with various exchanges and execute trades on the behalf of traders. Bots can access the exchanges’ order books directly via an API and can be created with detailed purpose and features in mind.
Benefits of bots
Crypto bots come with a wide range of benefits not only to traders but also exchanges, including:
- Lowered error risks associated with manual operations
- Removes all the irrationality and emotion
- Backtesting allows traders to authenticate the feasibility of trading strategies
- Allows to trades to be executed with much higher speed thus reducing missed opportunities
- The 24-hour trading means opportunities can be seized the moment they arise.
There are clearly a wide range of algorithmic cryptocurrency trading bots out there, some of which are highly customizable via scripts. However, the main challenge is choosing the right bots to execute trading strategies.
Types of bots
Before thinking of getting into algorithmic cryptocurrency trading, it is crucial to understand the different types of algo bots.
- Basic trade bots: These ones allow for configuration so they can follow all types of pre-conditioned strategies.
- Inter-exchange arbitrage bots: Designed to be used by traders who like to use several exchanges.
- Index bots: They help you create a well-diversified portfolio of crypt assets that can be managed similar to an index fund.
- Flash cash bots: These bots make the most out of temporary crashes in value of a coin or crypto asset
- Trendline bots: Use simple technical analysis to execute trades
Benefits of algorithmic cryptocurrency trading
There are a lot of benefits of algorithmic cryptocurrency trading, including:
- More time for analyzing and or resting since hybrid algo and bots will just take care of all the mundane stuff like trades and rate checks. This means that you can dedicate your precious time to leisure or market research.
- Faster compared to a human trader and they can make deals in just milliseconds, in which time they would already have caught.
- Expanded functionality since it is extremely easy to define intricate strategies, which ic made easier with the many tools in one place.
- Emotion and error-free bots make it perfect to execute trades by eliminating various errors associated to mistyped coins or amounts.
Possible cons of algorithmic cryptocurrency trading
While algo trading can be very profitable, it does not mean that it comes without its own problems. There are a number of issues you need to look out for when it comes to using bots for trading, including:
- Frauds and scams: This is one of the most common problems associated with bolt crypto trading. There are numerous exchanges out there that cheat on traders therefore, when shopping for a company to trade with, make sure you do your due diligence and use algo systems that offer free trials so that you can look around and see if you like what you see.
- Maintenance interruptions: Most of the time, bots will need some downtime for maintenance. But not what you think, you see algos needs to be updated regularly to be in tune with new trading strategies or regulatory changes. Sometimes you may need to get new bots entirely.
- Tech problems: This is also one of the most common problems associated with algo crypto investing. Provided terminals and bots interact with exchanges, they will be susceptible to disconnects, data leaks and hacks.