What Is a Crypto Trading Bot?
Trading bots are computer programs that automatically buy and sell different cryptocurrencies at the right time to generate a profit. The thing that makes crypto trading bots such an exciting proposition is their consistency and unflappability. However, it’s essential to note that not every bot is profitable, and few bots yield profits.
How do Trading Bots Work?
Bots receive their data from various APIs. Given data will signal trading bots to buy or sell orders. The next step is allocating the trade risk, which means bots will decide how much to purchase and distribute the available capital. Finally, based on the provided business logic, the order is executed. Mainly, two types of algorithms are used for trading: Momentum and Mean-Reversion. Crypto trading bots use momentum trading techniques to buy when the market is bullish, hoping that the price will increase. Mean-Reversion is precisely the opposite of momentum where the market is bearish.
Advantages of Crypto Trading Bots
There are many advantages to operating bots, and it’s all down to their skill set being considerably different from that of a human. Crypto trading bots are consistent and monotonous. To be profitable, you need consistency and have to do everything that’s highly counterintuitive to human nature. Also, let us not forget that bots operate 24/7 and faster than humans.
Arbitrage in Crypto Trading
Since there are multiple exchanges in the cryptocurrency market, prices differ from exchange to exchange. The arbitrage model offers promising returns for bots trading between the exchange markets. Crypto trading bots enable traders to benefit from this differential by qualifying them to trigger trades when needed.
In a Nutshell
Everything eventually comes down to individuals and how the bots were programmed. Gas fees and transaction costs are commonly overlooked factor that dramatically influences bots’ profitability. Crypto trading bots are profitable because of their consistency and swiftness.
