Crypto Trading Bots
Crypto trading bots offer 24/7 access to the volatile digital currency market with opportunities to enhance profits. They take care of mundane and repetitive tasks, keeping trades moving during sleeping hours while improving timing and accuracy. But whilst this sounds great, crypto trading bots come with risks. This review weighs up the pros and cons of using crypto trading bots, explains what to look for in a free or paid-for service, and provides a guide to building your own bot.
Top Crypto Bots
Among the best crypto trading bots in 2021 are Bitsgap and NapBots. Both offer market-leading integration with top exchanges, competitive pricing, and are easy to use for both beginners and experienced investors.
Crypto Trading Bots Explained
Cryptocurrency has skyrocketed in popularity, with Bitcoin reaching highs of over $60,000. Technology has grown with it, and algorithmic trading now constitutes over 80% of U.S. trades according to JP Morgan.
Crypto trading bots utilise machine learning technology to follow algorithms determined by the user and to execute trades. This automated process can streamline the trading experience, taking care of portfolio management tasks with a high level of accuracy and less influence from human psychological factors.
Losses are part and parcel of investing, but crypto trading bots can help reduce risk by adhering mathematically to a strategy, making decisions based on fact, not feelings. Crypto trading bots are widely used by high frequency and institutional traders for tasks that would be almost impossible to sustain otherwise. Market makers, for example, can profit using a cryptocurrency market making bot to continuously buy low and sell high. This provides liquidity on trading pairs and reduces the spread for other investors, contributing to a healthier market.
Crypto trading bots seem like an attractive opportunity, but if the trader doesn’t have experience and isn’t engaged, automated systems can exacerbate losses. Traders need to have a solid understanding of crypto markets to alter the algorithms and criteria, following market trends. Bots can also be costly to setup, so the returns aren’t always amazing. Whilst it is possible to make a unique crypto trading bot, there are advanced bots made by professional developers and free, open-source options readily available. A fully automated crypto trading bot would be an easy-to-use option for beginners, for example.
How Crypto Trading Bots Work
A cryptocurrency trading bot responds to an algorithm designed by the trader. The investor decides on the settings, inputting a strategy and a set of indicators to which the bot reacts, for example, price, volume, and liquidity. The bot continuously assesses these criteria, generating buy or sell signals, and executing trades in line with the chosen strategy.
Crypto trading bots are often used for automating recurring tasks. These include portfolio diversification and rebalancing, mitigating risk by ensuring the weighting of the portfolio leans toward the expertise of the trader. This can become a very repetitive and time-consuming process.
Say the investor wanted 70% of the portfolio to be cryptocurrency and 30% indices. If indices started to do very well, the weighting would start to shift in favour of indices. The bot can rebalance the portfolio by selling indices or buying cryptocurrency, following the trader’s instructions.
The second major use of crypto bots is to assist an active trading strategy. Bots are commonly utilised for data collection and analysis, testing strategies against historical data. One such strategy is arbitrage trading, which takes advantage of small price discrepancies across exchanges. If the crypto trading bot is powerful and fast enough it can execute an arbitrage trade before exchanges have updated their prices, buying the digital currency at a low price and selling it at a profit on another exchange.
Machine learning, or artificial intelligence (AI), means that crypto trading bots can learn from historical data. Deep learning can fine-tune successful strategies to optimise trades and buy or sell at the best time, increasing returns.
Pros Of Crypto Trading Bots
- 24-hour trading
- Consistent results
- Less emotional influence
- Takes care of repetitive tasks
- Streamlines the trading experience
- Increases reaction speed and accuracy
Risks Of Crypto Trading Bots
- Regular supervision required
- Sudden market movements
- Market manipulation
- Poorly designed bots
- Security weaknesses
- Small returns
What To Look For In A Crypto Bot
There are plenty of crypto trading bots that are easy to use for beginners and advanced enough to handle a high volume and frequency of trades. As you may be leaving the bot to execute critical trades 24/7, they have to be reliable. Diligent research is important to avoid crypto trading bot scams.
It’s worth doing a performance comparison against some reputable providers. Among the best crypto trading bots of 2021 are Pionex, 3Commas, Quadency, and Cryptohopper, all of which are great options for beginners. These bots all vary in price, but there is a free trial available with most.
A demo crypto trading bot is also offered by several leading developers, including Bitsgap, Napbots and Coinrule. Look out for other additional features too, such as automated iPhone (iOS) and Android (APK) apps. Some of these platforms include a marketplace where traders can buy and sell Bitcoin signals and strategies.
The best cryptocurrency trading bot depends entirely on your needs. Forums such as Reddit, Discord, Bitcointalk or Telegram are useful resources for investigating the reliability and suitability of a crypto trading bot and for tips and tutorials from other investors.
If you’re utilising a bot from a developer, there are a few things to look out for:
- Reputation – Ensure that the developer has a reputable team working on the crypto trading bot. Investigate the senior leaders and company history.
- Returns – Ensure the crypto trading bot has a history of providing strong returns. Look for transparency in performance reporting and backtesting.
- Security – Feeding back to choosing a reputable provider, security is paramount, as you are granting the crypto trading bot access to your capital.
- Compatibility – The leading exchanges at the moment include Binance, Kraken, and Coinbase. Make sure the crypto trading bot is integrated with the exchange you wish to use. For example, if you wish to use a bot on Coinbase, HitBTC or Bittrex, Cryptohopper could be a viable option.
How To Build Your Own Crypto Bot
Whilst there are a wealth of reliable and successful crypto trading bots available, a DIY method is an attractive option, offering greater control and flexibility. The easiest way to build a crypto trading bot would be to download open-source software, which is readily available through services such as GitHub. This requires little technical knowledge and keeps costs down; however, you are restricted in some ways and it might be more challenging to add unique features. If you are financially able, outsourcing the code and bot set-up to a good development team could save time.
To build a crypto trading bot you will need an API to access the exchange you wish to trade on. All the major cryptocurrency exchanges allow APIs. Open an account with the exchange in question, then decide on a trading strategy and a successful mathematical model before designing the bot. From there you can start coding, which is the time-consuming part. Finally, you will need to undergo rigorous testing, optimising the bot’s behaviour and ensuring it can handle the data processing. Once it’s live, the crypto trading bot will develop and improve over time with work and care. Note, you will have to continually monitor the bot, especially when you first launch it.
Final Word On Crypto Trading Bots
So are crypto trading bots worth it? Well, there are clear benefits. They can function 24 hours a day, increase efficiency, pick up repetitive and laborious tasks and free up time for the trader. Ultimately crypto trading bots have the potential to increase earnings; however, as with any trading, profits aren’t guaranteed and they can be marginal when you factor in start-up and running costs. They also come with other risks, for example, their market manipulation capabilities. Even the slightest error in the design of the crypto trading bot can result in the bot generating a loss.
Whether they are worth it depends on the user’s requirements. But overall, building a crypto trading bot and trialling strategies can be exciting for a retail investor, whilst for institutional traders, bots have become a necessity.
Find out more about cryptocurrency trading.
How Does A Crypto Trading Bot Work?
A crypto bot automates the trading experience. A bot will gather data and execute trades in response to a set of predetermined criteria, inputted by the trader. The bot follows algorithms, taking care of repetitive tasks and enabling the user to trade 24/7.
How Do I Make A Crypto Trading Bot?
Fully automated bots, created by developers, are readily available and are generally an affordable, reliable option. However, there is also a wealth of open-source software online if you would rather customise your own bot. The DIY route is now more accessible than ever, with forums and tutorials dedicated to the programming required to create a bot from scratch. See our review above for more information.
Do Crypto Trading Bots Work?
Providing the bot is well-designed, a crypto trading bot will be more efficient than a human. Bots act without delays and execute trades with less human emotion. That said, they aren’t exempt from losses, and if they are following bad algorithms or have faults, they can fail.
How Much Can A Crypto Trading Bot Make?
When you factor in the cost of creating or paying for a crypto trading bot service, the net profits might not amount to much, especially to start with. You have to carefully consider the maths; nonetheless, trading bots can help mitigate risk and increase consistency, which is desirable given the volatility of crypto markets.
Are Crypto Trading Bots Legal?
Using a crypto trading bot is fully legal. That said, anything which is illegal when traditional trading is also likely illegal with a bot.