The crypto market never sleeps. It’s what day traders wake up to in the morning and sleep to at night. It’s what you see people in cafés staring at endlessly during the day as they put in and pull-out small amounts of money to make minor profits day after day.
Sadly, we mortal creatures need to sleep at some point, and every trader’s biggest fear is to fall asleep and wake up to a massive, missed opportunity or squandered gains.
Algorithms, however, don’t need to sleep, and that is what entices many to move towards installing and running automated crypto trading bots to boost their daily trading income.
What is a Crypto Trading Bot?
It is simply an algorithm that participates in the crypto trading market by executing preset buying and selling conditions. It’s an algorithm that trades for you using the capital that you have on the exchange.
Yes, your money will not be traded from your wallet, but from the exchange. So if the exchange gets hacked, so do you.
How do Crypto Bots Work?
There are two types of trading bots: Arbitrage, and Grid.
Arbitrage bots use, wait for it, arbitrage trading to make a profit, which means they capitalize o the price difference of one token between different exchanges, buying at the lower price and automatically selling at the higher.
A grid trading bot on the other hand uses a token’s market volatility to buy low and sell high at different intervals. This kind of bot lets you specify strategic thresholds for trading.
For example, say there is a token fluctuating around a $1 value, what you would do it set several thresholds at which the bot should buy or sell. So buy at $0.9, sell at $1.1. Setting several of these parameters is what makes it look like a grid, hence the name.
Over time, some crypto trading bots can even use machine learning to read the crypto signals on the charts more accurately, make more precise predictions for future price changes, and put those suggestions aside for the user.
Benefits of Using Bots
- Trade 24/7 whether you are at work or asleep so you don’t miss out on an opportunity to buy or sell.
- Back test your buying and selling strategy and figure out what works and what doesn’t using AI crypto trading algorithms that adjust as you go.
- It simplifies trading, working within a set of parameters
- Crypto bots help take the emotion out of trading, avoiding FoMo and panic selling.
- Execute multiple trades simultaneously
Time to Burst Some Bubbles
Alright now that we have an idea about automated crypto trading bots, let’s talk about what it is not. Crypto trading bots are not magic money-making machines. You don’t just put all your savings into it, go on vacations and come back with double your money. In fact, a bad trading strategy can end up costing you.
It is not a passive income. Bots need constant tweaking, and trading strategies need constant reviewing.
And of course, be careful, scams are everywhere.
If it sounds too good to be true, it probably is. If you encounter a trading bot offer that claims to grant huge returns in exchange for a small one-time fee, dump it, it’s a scam. A bot is not a substitute for smart trading.
It will take time and expertise to get a handle on trading and therefore the ability to use trading bots profitably. If the terms ‘bullish’ and ‘bearish’ mean nothing to you, or if you are unfamiliar with the word ‘market cap’, then maybe play around in the crypto space before attempting t jump straight into bots. This is not financial advice, over and out.