Crypto Trading Robots – A Detailed Insight

The cryptocurrency market is global and has great potential to earn full-time trading or even get profits sideways. It works 24 hours a day, 7 days a week, and 365 days a year. And no one can predict when there will be a massive event or big move going to take place in the market. Traders fear that they may miss an opportunity for making some serious money due to human constraints. Crypto Trading Robots is one rescue mechanism for this fear.

Crypto trading bots are simple computer programs with a predefined set of instructions to act upon on behalf of traders. The bots are connected to the exchange platform using Application Program Interface (API), which allows them to put restrictions such as permitting only certain IP addresses to be allowed to access, enabling buy and sell, and disabling withdrawal, which gains users’ confidence. These bots perform trading even when the user is not physically present, the trader just needs to switch on the robot and can carry on with day-to-day activities.

How do Bots function

As said before, bots are programmed with a set of instructions similar to Smart Contract, when those pre-defined conditions are triggered bot performs the allocated task in the program which can be buying or selling or some other. Some general actions which are available on different crypto bots are Analysis of Data and Prediction of Risk. The data is collected from various sources, processed, and interpreted to make the final trading decision. Usually, the investors customize the types of data that have to be analyzed. The prediction of risk is calculated using the historical data and patterns, and with that, the bot concludes on where to invest and where not to. The potential risk of a specific digital asset can be known in the prior hand before trading. The bot also uses Artificial Intelligence (AI) for making the decision and Machine Learning (ML) aspects make it more user-friendly.

Each trading bot varies in its execution style, some provide you with a trial run for a period of time, some collect fees at the start, and some are free to use. But the basic steps remain the same in all that is, first registering an account, providing a valid ID, depositing a minimum fund which can be fiat or crypto, and then finally trading. 

Types of Trading

The employment of a bot specifically depends on the type of trading the investor is going to make. There are many types in both traditional and crypto markets, four of them are as follows-

Swing Trading- This is used in place for increasing the capital in the short term. The trader gains earnings within a few days of purchase, ideally within a week.

Day Trading- The buying and selling in day trading happens within a day. The stock will be owned by an individual for just a few hours.

Scalping- Generally known as micro-trading, can be seen as a subset of Day trading. Reaping small profits continuously within a single day.

Arbitrage- Trading with the same asset on two different platforms where pricing differs and gaining profit from that.

Types of Crypto Trading Bots

Bots are just customizable programs and they can be personalized for each user, there are N number of Crypto bots, and some famous categories of them are as mentioned below-

Coin lending bots- Margin traders borrow coins as loans and return them with interest, the bot takes care of the lending process, and the interest rate calculation is automated.

Arbitrage bots- Fluctuation in the market rapidly, and keeping a record of all assets at all platforms can be quite troublesome for investors. Arbitrage bots are programmed to compare prices on multiple platforms at the same time and buying/selling happens instantly. But the gain in this type is quite marginal.

Trend trading bots- Memecoins can be used as a specific example for this, here the bot studies the market trend and withholds the trade based on the peak period of the asset.

Positive and Negative Impacts of Bots

Like two sides of the coin, everything is expected to have both advantages and disadvantages. Some pros of the bots are-

No time constraint for trading- with bots, now trading can carry along all day long.

Logical decision making- the fear of missing an opportunity or panic trading can all be avoided because bot buys/sells only when the constraints are fulfilled.

Backtesting trading strategy- the applied trading strategy can be compared with previous market history for risk prediction.

No need for a high computation setup- the bot can be run on any desktop or PC.

Looking at the cons to be taken into consideration are-

Scams- Have to be vigilant about the platform that supports bot and also genuine ones when poorly programmed will not yield much profit.

Monitoring- though the program is automated, the user has to monitor it from time to time. The trading strategy has to be updated based on the trend of the market.

Hardware and software hindrances- the software running bot will obviously require updating frequently and there is the risk of physical wear out and tear-offs of the hardware devices.

Leaving funds in exchange for a long duration- there is no guarantee for your investment since every other exchange is prone to hacking.

Major crypto bots in 2022

According to Software Testing Help, a remarkable crypto bot for the year 2022 is- Pionex, which has 16 in-built trading bots with 0.05% trading fees collected from sellers & buyers. Suitable for newbies provides guidance in each step. Botsfolio is preferable for cheap trading, an attractive feature here is the Risk management intelligent software. CoinRule is free of cost but with limited features, mobile apps are the go-to for this bot. CryptoHopper includes a savable & configurable template with bot backtesting tools. HaasOnline includes 15 in-built bots and supports multiple exchanges & order templates.

Recent Bot appearance in the News

The Solana ecosystem had to suffer a 7-hour outage on 05/01/2022 due to the bot invasion of the Metaplex Candy machine, a Solana NFT project. Another bot that appeared on news recently was AYMBot, an automated Bitcoin-trading Bot, as its CEO Ahmad Alsharqatil was listed in ‘Top 5 Personalities Disrupting the Finance Industry in 2022’ by Entrepreneurs Herald.