Everything you need to know about trading bots

Trading Bots

Unlike stock markets, which have fixed working timings in a day (9:15 AM to 3.30 PM), the cryptocurrency market never shuts down. Due to its 24*7 operations, it could be a little bit stressful situation for traders and normal investors when compared to the casual investors in the stock markets. Now, people who have been in this cryptocurrency market must have got familiar with sleeping and waking in the odd timings and many times they go to bed or wake up with either excellent or worst surprises as they check their portfolio and see great profits or huge losses.

Because of this volatility in the market, trading bots are becoming immensely popular among the investors and trader who allow them to remain in control of their trading regardless of the timings. Apart from that, with rightly given specifications for the bot, it trades faster and more efficiently than a trader ever would do.

But what are trading bots?

In a nutshell, a trading bot is a typical software program which deals with all the financial exchanges and places in order to purchase and sell orders by interpreting the market data while you are unavailable. The trading bots take the best decisions by keeping an eye on the market’s price movements and take action according to your predefined and pre-programmed norms.

Usually, a trading bot analyzes market actions like a number of orders, value, prices, etc. even though it can just normally be programmed to suit your specific needs and requirements.

A little story of the trading bots

The utilization of trading bots in the stock markets started way back in 2010 when the stock market collapsed. Later, in 2012, another finance employee launched trading platform BTC.sx after making huge profits using scripted trading bots in order to purchase and sell Bitcoins.

Even though Bitcoin and other cryptocurrencies recently became popular, these trading bots have been known to investors and traders in various traditional financial markets for quite some time now. Despite the popularity they got, the trading bots weren’t made available to the average investors since they cost too much of money for an average trader/investor to spend.

For instance, a Bloomberg terminal costs around $10, 000. Nonetheless, because of the transparency that Blockchain technology offers, cryptocurrency exchanges have granted their investors a direct market access with which investors had the chance to monitor the exchange’s electronic order book, which conventionally was only available to the brokers and investment houses in traditional financial markets.

As the number of people/investors trading Bitcoin and other cryptocurrencies is increasing, it is increasingly becoming complex to analyze the market. Hence the trading bots let investors build more efficient trading without having to monitor the market 24*7.

How do trading bots work?

There are some specific strategies that trading bots utilize to enhance the investor’s asset values. The very first would be the arbitrage technique that utilizes the difference in the prices of cryptocurrencies on various exchange platforms to assist the user in earning a substantial profit.

The trading bot purchases altcoins on one exchange platform and then sells them on another platform which ultimately gives you a profit based on the price difference in the two values.

The second technique is market making. The trading bots use the difference in the prices of the buy and sell in an exchange platform to make good profits by continuously placing buy and sell orders near the limit. Of course, the aforementioned strategies can assist you in making substantial profits. But at the same time, you need to extremely cautious on the strategies and techniques you use.

Do trading bots work?

Unlike humans, trading bots don’t think, they work by reacting to the market movements. Trading bots collect data they require so that they can implement a trade based on the analysis of the trading platform. Nevertheless, with cryptocurrencies, whatever the trading bots learn, it’ll be just one side of the story, with various rises and downs being based on the other channels which can’t be truly programmed into the trading bots for further and deeper analysis.

In addition to that, as said above, the difference between the exchanges in the prices had flattened to some extent which means that the chances for inter-exchange arbitrage will be comparatively lesser than previous years.

Various trading bots utilize EMA (Exponential moving average) as a beginning point to analyze the market. Now, EMA’s track market prices over a set timeline and trading bots could be pre-programmed to react based on the prices movements. By pre-programming the trading bots, investors can set their high-low points to correspond with the amount of risk can be taken. But the demerit of this EMA is that the analysis is based on earlier prices and other history and which isn’t a good indicator of future performances especially in the cryptocurrencies market where there is a high volatility.

So, the question if at all trading bots work is a complex one. Because what works for one may not work for the other investor. Trading bots provide a comprehensive range of benefits which includes a continuous interaction with the market along with the not-insubstantial factor of eliminating the emotion from the trading part.

Nevertheless, by utilizing the wrong trading strategies or depending on others’ trading strategies, your trading bots can just end up automating a couple of bad market trading decisions.

Top Trading Bots

  1. 3Commas

This is one of the most popular trading bots that will work with a various number of exchange platforms and that includes BitFnex, KuCoin, Cryptopia, and many others. This trading bots effectively works 24 hours a day with any kind of device since it is a web-based service and investors can easily keep an eye on their trading dashboard on a smartphone as well as PC.

  1. GunBot

GunBot is a very famous cryptocurrency trading bot that utilizes individual trading strategies which can be entirely customized based on investors’ needs and trading style. GunBot works on Bittrex, Cex.io, Kraken, Binance, and a couple of other exchange platforms. Users can run the bot on their own PCs or even utilize a VPS and can add various coin pairs on their own and choose a trading strategy.

  1. CryptoTrader

This one is a cloud-based bot which offers investors a complete automated trading solution that doesn’t need any sort of installation of the bot on their own PCs. CryptoTrader is loaded with strategies which let investors choose their trading strategy or even alternatively to sell strategies built by themselves. This trading bot almost supports all major exchange platforms along with a backtesting feature that allows investors to see how their trading strategies work under various market scenarios.

  1. Gekko

It is an open-source trading bot and has a backtesting feature which can support almost 18 various Bitcoin exchange platforms. This trading bot is completely free of cost and can be easily found on GitHub website. With a wide range of plugins and basic strategies from the outset, investors can easily update the software and also be more comfortable with the utilization of the trading bot.

Final thoughts

Trading bots help the traders and investors by making sure that they are always monitoring the market movements when they are away from their desk. These trading bots can greatly help in reducing stress levels and emotions which people are often driven by in most financial markets.

However, not every investor needs a trading bot. General investors don’t mandatorily require trading bots and if you want to purchase a cryptocurrency and hold on to that for some time then probably trading bot is not for you. Also, if you are not too much familiar with the financial strategies or a competitive programmer, even then trading bots are not for you. However, if you already have the basic information and knowledge and the capability to overcome such hurdles then a trading bot could turn out to be a worthy investment in interacting with the market and making profits from the financial market.

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