Trading cryptocurrencies - a hassle in itself, one that entails breakneck pace and the compilation of an astounding amount of information. Various aggregators of news about cryptocurrency-related events and regulations merge with market price charts to create a picture of utter chaos. Or so it would seem to the average user who has not been initiated into the inner workings of the crypto industry’s most intimate secrets.
The first stock markets arose early in 1611 when the First Dutch East India Company was publicly put up for sale in Amsterdam. The first iteration of stock trading mimicked a crowded hall full of sweaty noblemen and rich medieval traders, all vying to get a piece of the lucrative company as an investment for their thalers and other gold coins. The commotion and the excitement of stock trading then differs little from the hustle of modern trading floors, such as those on Wall Street. The difference resides mostly in the tools being used for effectuating the trades, and the companies being put up for sale, of course.
The cryptocurrency market is little different from the stock exchange. One merely has to imagine crypto exchanges, such as KuCoin or Huobi, as physical trading floors where various individuals haggle to put their offerings up on sale or buy up what is available at the lowest possible prices. The equipment would include high speed computers and a great variety of so-called automated constructs for trading.
The use of automated trading systems, or ATS, is not a novelty at all. In fact, the very first kinds of tehse systems have been around in their most basic and primitive forms as early as the 1940s. However, times have changed dramatically since then, as have the market conditions and the intensity of trading therein. The advent of algorithmic and high frequency trading has led IT solutions developers to create dedicated constructs that would be able to carry out trades based on specific algorithms in automated fashion. More importantly, such automated systems would have to learn from incoming data streams and adjust their behavior in response to ensure the ability of achieving gains from operations on the trading floor.
If the crypto market is truly a mirror reflection of the traditional stock market, with all the same laws of supply and demand, as well as highly correlative histories and price charts, then it is logical to assume that any manner of ATS would be applicable on it as well. Enter the crypto trading bots.
A high degree of uncertainty in the future of potential price movements is characteristic of the cryptocurrency market. Prices for such cryptocurrencies as Bitcoin and its competitors constantly swing back and forth from extreme highs to extreme lows, first riding the crest of hype before plunging down the pits of yet another crypto winter. The given factor is what attracts traders to the cryptocurrency market in search of profits that can be had if they start applying myriad strategies aimed at reaping rewards from the placement of orders in a range of positions, long or short, depending on market dynamics and the personal convictions they have in various approaches.
Some traders believe the scalping is an effective strategy reaping the profits from hundreds of minor orders that result in tiny gains, which, if combined, result in a significant income in cumulative terms. Others believe that long-term holding is the key, keeping their faith in a specific asset and its eventual appreciation. Others still think that buying on highs and selling on lows is the most surefire way of doing business in crypto.
Whatever the approach applied, market participants cannot constantly maintain vigilance and remain glued to their computer screens, trading away days and nights on end. And this is where the crypto bot comes to the rescue a software suite that never tires and is capable of adhering to a selected course of action. As such, trading bot does exactly what it is told to do, copying the scheme of trading it was instructed to follow.
Trading bots are much more than just copycat performers of the schemes of operation their owners tell them to adhere to. A whole plethora of trading bots infests the market at large and virtually any of them can be tailored to suit different scenarios. Each and every one of them is intended to be used by traders with varying risk-appetites.
These trading bots are designed to analyze incoming market data streams and react to the trends they were programmed to identify. Once the data stream has been analyzed and the asset to be traded considered from all possible price movement angles, the trading bot simply executes the order to buy or sell. Upsurges in prices will signal the bot to start taking a long position, holding the asset in anticipation of further appreciation. The reverse is applicable, as the trading bot will simply start to sell off an asset that is losing in prices. Both price ceilings and price floors can be input into the trading bot to make sure the trader does not lose any excess funds.
Trend trading bots can take into account a wide range of indicators that are called technical – the moving average or the Bollinger Bands. The advanced computing solutions within a trading bot allows it to conduct in-depth investigation into various kinds of metrics and derive trends just to be able to match the trading approach it was programmed to adhere to.
Arbitrage is a very straightforward concept that exploits the sway between prices on a certain asset and earns on it. The trading bot purchases the same asset on a certain market, where it costs less and instantly sells it on another market with a profit, thus reaping the profit formed by the sway across the market. Trading bots constantly track the values of a selected basket of assets across aggregated data channels and identify entry points for arbitrage. For example, Bitcoin can be worth less on a Japanese exchange due to lower demand, but could be much more demanded on a Nigerian exchange. The given price difference spurs the trading bot to buy and sell.
Though arbitrage bots were extremely popular in the heyday of the cryptocurrency hype back in 2017, the market has leveled out significantly since then and most assets are traded at almost equal prices.
The given type of trading bot takes advantage of the spread that exists among asset prices. The more active the trading of an asset, the wider the spread will be. The basic concept is simple sell an asset at a value higher than the standard market sell price and earn on the range. The market maker bot performs such operations in fully automated fashion dozens of times a second and earns small profits from the actions.
Trading bots have been around since the advent of all civilized market platforms relying on software, and the path of evolution it took into a venue of exchange. As a fully automatic digital solutions suites, trading bots can be programmed to operate in a wide variety of capacities and adhere to virtually any approach to trading. Their nature gives them the ability act in the trader’s stead and have the user intervene only in extreme circumstances.