What exactly is a crypto trading bot?

Because cryptocurrency trading happens seven days a week, all around the clock, crypto trading bots have surfaced as the de-facto tool for skilled retail traders and investment firms to track and profit from every transfer in the cryptocurrency market.

It is known as a software application that simplifies trading duties such as identifying, buying, and selling cryptocurrencies according to specific parameters set by the developer or creator.

Using artificial intelligence (AI) principles including such as safety, objectivity, and trust, crypto trading bots can be arranged to execute various strategies like purchasing into undervalued tokens, introducing additional cryptocurrencies which have hit the market or perhaps even trading in a box of cryptocurrencies to profit from price fluctuations.

Because these are operated according to pre-defined rules and conditions, they prevent investors from succumbing to emotions and provide a more effective trading method in uncertain markets.

Whether it is set up to buy and sell signals or go the extra mile and implement a trade, investors can benefit significantly from the logic-based strategy and AI-powered deal automation.

How does a cryptocurrency trading bot operate?

Crypto trading bots must keep pumping data from exchanges to generate trading signals, determine the risk associated, and then perform a trade. This is true for buy and sell trades and is reinforced every time a trading bot interacts with a crypto exchange.

It analyzes the information using machine learning techniques and identifies possible trades meeting its pre-set criteria after accessing the trader's account utilizing Application Programming Interface (API) keys.

Source: light-it.net

Following that, it assigns capital in ratio to the trader's risk and executes trades by transferring buy or sell commands to the exchange via its API. The length of code used in a trading bot varies according to the number of different schemes that it can implement. In addition, the program code used is determined by the creator's level of familiarity.

The most advanced in use today rely on Python, mainly because it is ideally suited to developing applications for automated trading and has innovative libraries that devs can use.

How effective are crypto trading bots?

It is well known that algorithmic trading dominates the majority of Wall Street trading volumes, which has been increasing over the last decade. The same is now conveyed in cryptocurrency markets, as institutional investors' trading activity keeps gaining traction and far outnumbers retail investors' trading volume.

As a result, the use of these is growing. A rising number of private investors are using one or more AI crypto trading bots to increase their chances of earning huge returns in cryptocurrency markets.

Is it legal and secure?

Amidst many reservations about the legality of crypto trading bots, the fact still remains that they are used globally and are considered legitimate. 

However, being legal does not imply being safe. This is especially true for traders who are used to trading in large volumes in the hopes of profiting handsomely from minor price fluctuations in the underlying market.

Although a crypto trading bot will unquestionably aid in executing large trades in milliseconds, the potential for massive losses exists if the trading plan is not adequately back-tested. 

Backtesting is an important part of developing a successful trading system because it includes recreating results using historical data and analyzing the resulting statistics to determine the effectiveness of the trading style.

How much does a trading bot cost, and is it worth it?

When selecting a crypto trading bot, investors must weigh the benefits and drawbacks of "free" versus those that charge a flat monthly or annual fee. Most popular cryptocurrency trading bots, such as Naga, Pionex, and eToroX, do not charge consumers for viewing but have trading commissions as low as 0.05% for every trade implemented through their platforms.

This is especially important for individuals whose daily trading volume regularly exceeds tens of thousands of dollars. The trading fees due over the course of a month could be far greater than the subscription fee billed by other competing companies.

Cloud-based trading bots, for example, such as CoinRule and CryptoHopper, offer a free trial period after which consumers can be charged as little as $19/month to as much as $450/month, based on the plan and variety of services chosen. These are more suitable for high-volume traders who want to access these services worldwide.

Investors or traders interested in purchasing or renting it should determine whether their crypto exchange supports bots. CoinBase, for example, does not permit trading bots to converse with its platform, despite offering that feature with its CoinBase Pro platform.

However, since Coinbase has announced that the CoinBase Pro platform will be phased out by the end of 2022, all multiple trading features, such as the use of trading bots, will be accessible to all users by the beginning of 2023. Exchanges such as Binance, in contrast, support a variety of crypto trading bots and are better suited for those looking to engage in the high-speed trading enabled by these bots.

Which factors do you think could play into the success or failure of using bots for crypto trading? Let us know your thoughts by sharing this article on social media.

Oct 28, 2022
Digital Lifestyle

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