Cryptocurrency trading has evolved with the advent of crypto exchange platforms, making it easier to trade Bitcoin, Ethereum, Litecoin, and other cryptocurrencies. These platforms, which can be centralized or decentralized, facilitate the trading process and set prices based on trading volumes, allowing users to trade cryptos for fiat money and vice versa.
Traders use tools like arbitrage, market making, stop-loss orders, and backtesting to maximize profits and manage risks. Arbitrage involves buying a cryptocurrency on one exchange at a lower price and selling it on another at a higher price. Market making enhances liquidity by placing bid and ask orders, while stop-loss orders help limit potential losses by setting a predefined sell point.
Backtesting evaluates the viability of a trading strategy by using historical market data. Crypto trading bots play a crucial role in this ecosystem by automating the trading process, operating 24/7, and performing tasks beyond human capabilities, such as simultaneous monitoring of multiple exchanges and executing trades based on complex algorithms.
These bots require proper setup and customization, and they function by analyzing market data, predicting market risks, and executing buy/sell orders. Some popular Bitcoin trading bots include Cryptohopper, 3Commas, Shrimpy, Bitsgap, and Haasbot, each with different features and compatibility with various crypto exchanges.
While crypto trading bots are a powerful tool, they require maintenance and careful customization to ensure profitability. They are useful for both novice and experienced traders who understand how to leverage these advanced software solutions.
The cryptocurrency market has gone a long way from the introduction of Bitcoin (BTC) in 2009 and the first steps of crypto trading, to the modern day status of hundreds of cryptocurrency exchange platforms that trade multibillion-dollar sums on a daily basis.
Back in the day, when BTC and other altcoins like Ethereum (ETH) and Litecoin (LTC) were making their first steps, trading cryptos wasn’t easy at all. If you were a miner, you could get your hands on some cryptocurrency by using your computational power to mine, otherwise you could only buy some digital assets if you managed to dig through forums and find someone willing to sell you a certain amount for fiat money.
Cryptocurrency exchange platforms have made buying BTC and other assets far simpler. Nowadays, there are hundreds of different exchange platforms. Crypto traders and brokers use various tools and tactics to make profits from trading on exchanges. One of these tools are crypto trading bots, programs that can trade crypto on your behalf.
Let’s take a detailed look at how crypto trading works, what basic tools traders have at their disposal, and how exactly Bitcoin trading bots fit in this picture.
How Does Cryptocurrency Trading Work?
A large portion of cryptocurrency trading today happens on crypto exchange platforms. These platforms are made with the sole purpose of providing users with quick, easy, and reliable means of trading cryptocurrencies for other cryptos, fiat money for cryptos, and crypto assets for fiat currency.
There are numerous crypto exchanges available on the web today, some of which are centralized and trade high volumes of various cryptos every day.
There are also decentralized platforms that deal with just a few selected digital currencies. Most platforms require KYC authentication if you want to create an account and start trading, although there are some that don’t require much of your personal info.
Using crypto exchange platforms is basically the most practical method for trading digital assets today. These trading platforms connect interested parties that want to sell or buy certain cryptocurrencies and facilitate transactions through their software.
When a crypto trade is taking place, the funds that are being traded need to be processed through the blockchain networks to which the currencies are native. This can take a couple of minutes depending on the currency that is being traded, but the whole process of finding an interested vendor is being done by the crypto exchange platforms, which makes trading a fast and easy process.
Crypto exchange platforms set the prices of currencies based on their trading volumes, so it is possible for the same crypto (like BTC) to have different prices on various exchange platforms. Traders look to make profits either by trading different cryptos and taking the difference in value for themselves, or by trading the same assets on multiple platforms, buying it cheaper on one exchange and selling it for a higher price at another one.
Tools for Crypto Trading
There are several important tools that cryptocurrency traders use in order to maximize profits. The aim of these tools is to minimize potential risks when investing money in crypto assets, and to get the highest return on the invested funds.
Cryptocurrency arbitrage is one of the most popular methods for profiting from trading on crypto exchange platforms. Basically, it’s a method that is focused on monitoring the market and paying attention to the fluctuation of prices and the volatility of the crypto by following the statistics on crypto exchange platforms.
Arbitrage is usually done with several exchange platforms and it means that you simply monitor the price of a currency, let’s say BTC, on a couple of large exchanges like Binance or Kraken and a couple of smaller ones like Okex or KuCoin simultaneously.
When you notice that the price of BTC is rising, you quickly buy some BTC at a lower price at one exchange and then sell it at a higher price at another one. The most popular exchange platforms usually sell cryptos at a slightly lower price than the smaller exchanges, because they have a higher trading volume.
This is why it’s profitable to sell your BTC at a smaller exchange which will probably give you a better price. In crypto trading, this is called arbitrage and it is how traders make lots of money fast, if they are skilled and know which exchanges are worth monitoring.
Market making is a widely used tool for boosting the liquidity of a certain cryptocurrency. Groups of traders submit both bids and ask limit orders on crypto exchange platforms, in order to drive up the price of the target currency.
Traders that participate in market making earn profits by collecting the bid-ask spread, sometimes over thousands of small trades.
All of these trades create the impression that a certain cryptocurrency is being traded at increased volumes and that its popularity is rising. When other traders who aren’t participating in the market making process see the fluctuation in trading of that certain crypto, they also start trading the asset to get a piece of the action.
This is usually done by organized teams of traders with the aim of creating a better market atmosphere for a crypto they are rooting for. It isn’t uncommon that developer teams that have created a certain currency or large companies and investment funds that have large amounts of digital assets in their portfolio are behind market making tactics.
A stop-loss order is an important financial instrument used by traders to maximize profits and limit potential losses. It is the policy of buying or selling a certain asset once it reaches a certain price.
When trading a crypto like BTC, it’s good to have a defined stop-loss plan, because the prices of cryptocurrencies are quite volatile and you simply can’t know when the rise or fall of their will end and when it will suddenly start going in the opposite direction. That’s why you should set a limit for yourself regarding the rise or fall of the price of BTC in order to know when to buy or sell your coins.
Stop-loss is a tactic made to limit your losses. For example, by setting the stop-loss limit at 20% below the price you initially bought your BTC, you will limit your potential loss by 20% and once you reach this mark you just issue sell orders without any delay.
It is important to emphasize that you should always have a stop-loss limit and to always respect the limit you have defined without letting emotions drive your decision-making when you start losing money during market fluctuations or trades.
Backtesting is a method of key importance for investing in trading assets. Investment funds and big time brokers all employ this method before they start investing large amounts of cryptos in trading on exchange platforms.
The term backtesting refers to assessing the viability of a trading strategy and creating possible scenarios of the trading strategy’s results, based on earlier, historic data from the market.
If a trading strategy passes the backtesting process, traders and investors may start implementing it with great confidence in their potential gains. This is a great way to test your own strategies before implementing them.
And Finally, Cryptocurrency Trading Bots
So, what role do cryptocurrency trading bots play when it comes to trading tools and tactics?
Consider this: the crypto market is highly volatile and there are constant fluctuations in the values of different assets. Given the fact that cryptocurrency exchanges operate 24/7 and don’t have fixed working hours like stock exchanges, it’s very difficult for a trader to constantly follow the changes of crypto prices and act quickly by buying or selling assets at the right time.
If you think about it, in order for a trader to be in the loop of cryptocurrency volatility all the time, they would need to monitor large numbers of exchange platforms around-the-clock.
Clearly, this is simply impossible for a human being. A trader can perhaps monitor a couple of exchanges and react to the price changes in a timely manner during the day, but in order to achieve high efficiency in monitoring exchanges platforms and making buy or sell decisions fast, traders need the help of cryptocurrency trading bots.
What Are Crypto Trading Bots?
Crypto trading bots are automated software programs that can be programmed with advanced system algorithms to monitor hundreds of exchange platforms simultaneously, carry out a high-frequency of trades and money transfers, and base all that automated activity on initial and ongoing system input by the human investors they belong to.
These bots are made of advanced programs specifically designed for the sole purpose of automating all crypto trading processes, so they make things significantly easier for you on the crypto market.
The usual process of monitoring exchanges, analysing statistics, and deciding what to buy or sell and when can be overcome by using trading bots that do all the analysing and decision-making for you in just a couple of seconds, based on advanced software solutions.
Trading bots efficiently gather market data, and what is even more important, they process it and calculate market risks in order to buy or sell cryptos at the best possible moment. These bots follow preset settings from the user but they use advanced algorithms to decide when to buy, sell and how much. Also, some of these bots are free to use, while others have several levels of pricing.
How Do Crypto Trading Bots Work?
There are numerous types of trading bots on the market that offer various services. Some of these bots are free, but they come with limited features. Other bots come with fees that can be quite expensive, but are well worth it if you know how to utilize them.
In any case, it’s advisable to first do some research into the features of a bot before deciding to try it. Also, you need to have some serious knowledge about the crypto market before trying to use a bot, because the activity of your bot depends on the input you give it.
So, how do you start using a bot? When you download the code for a trading bot from a developer, you need to customize it and set it up. Bots have different requirements both regarding software and hardware, so you can’t just use any bot on any operating system or computer.
In order to use a trading bot, you also need to set up your trading accounts on various exchange platforms that you want your bot to be trading on, and you need to fill those accounts with cryptocurrency for the bot to use. When you have your trading bot all set up, it can begin trading assets.
Keep in mind, however, that in many cases, you are still required to make key investment decisions depending on the set up of the bot and the clearances you gave it.
Be aware that this isn’t a quick way to get rich, but automated trading bots are great tools for making a profit if you put in some time, investment, and smart tactics based on knowledge and experience.
What Does a Crypto Trading Bot Do?
Let’s take a look at the key functions that a trading bot carries out.
Analyzing Market Data
Trading bots collect and save raw market data in order to process it, analyze it, and use it to decide what they should buy or sell, how much, and at what time. The market data is gathered from various relevant sources in order to get the best possible overview of the market to conduct successful algorithmic trading.
Bots usually allow their operators to customize the data collection parameters that flow into the bot’s signal generator in order to target specific crypto assets, such as BTC.
When you are tuning your bot and setting it up to target specific data, you can select exactly what cryptos you want to trade with, limit trading volumes, and define all other aspects of the data collection and analysis processes. This is why it’s very important that you already have extensive knowledge of the crypto market before you start using a bot. You need to know how to set your bot up right to get the desired results.
Prediction of Market Risk
Prediction of market risk is the key aspect in which a bot can give far better (more accurate) results than a human being since the risk assessment is made based on extensive data collection and analysis.
This parameter refers to analyzing dozens or even hundreds of exchange platforms to predict the rise and fall of value of a certain crypto, and to subsequently decide at what time and how much of a certain crypto you should buy.
This sort of task is impossible to carry out in real-time for a human. For a bot, on the other hand, monitoring market conditions is just a computational process based on complex algorithms that enable the bot to assess risk and make the right decisions. Based on the analysis of gathered data, the bot can realistically decide how much to invest or sell and when.
Finally, trading bots buy and sell cryptocurrencies using their API key (application programming interface) based on the gathered and analyzed data. The buy/sell process is the key functionality of a trading bot’s activity and it is the main reason investors use this type of software.
Bots can buy and sell cryptos fast, at the right time, and based on precise information that enables them to make accurate strategic decisions.
Popular Bitcoin Trading Bots
There are numerous trading bots available on the web, so it’s very important to find one that is reliable and trustworthy in order to utilize it the best way possible for trading. Let’s take a look at some of the most popular BTC trading bots currently on the market.
Cryptohopper is among the most popular trading bots on the market. This bot enables users to manage all of their cryptocurrency exchange accounts through one interface.
You can trade BTC, ETH, LTC and other popular cryptos. Cryptohopper allows users to create their own technical analysis, comes with a user-friendly interface, provides real-time performance reports, and protects account data with top-notch security protocols.
The bot is free and is also compatible with Android and iOS, so you can use it on your mobile device.
3Commas is among the top crypto trading bots that can help users increase their revenue and at the same time to minimize their losses, all thanks to the highly efficient risk assessment system that creates trading strategies based on more than 20 key trading indicators.
This is a great bot for profiting with minimal effort. The user interface is really simple. Buying and selling coins and their parameters are found in a single window. You can also copy the settings of other bots.
The platform works 24/7. 3Commas support numerous popular trading tools like dollar cost averaging, signals, and backtesting.
Bitsgap is another top-of-the-line BTC trading bot that has fantastic features such as the ability to analyze more than 10.000 crypto pairs, which allows it to locate prime investment opportunities.
You can closely monitor the automated trading process through a user-friendly chart and test your trading strategy before investing money. Plus, you can access the bot without downloading any software.
Haasonline is a crypto trading bot platform that allows you to use more than 15 bots, with more than 50 financial and technical indicators that can help you create elaborated trading strategies that could potentially bring you huge profits.
The platform has its own Haasbots for buying and selling cryptos. The bots can be programmed with customized scripts and there is a handy tutorial that explains how the platform and all the automation processes work. Haasbot also has backtesting options that can be integrated with Discord and Telegram.
All of these bots support various popular exchange platforms and they can be connected with your exchange platform accounts. Some of the supported platforms include Coinbase Pro, Kraken, Okex, Bitfinex, KuCoin, Bitstamp, Bitmex, Poloniex, Hitbtc, Gemini, and Huobi.
A Few Words Before You Go…
Crypto trading bots are a valuable asset for all serious crypto traders, especially if they are dealing with BTC. These bots can accomplish much more than people in a really short time span.
In other words, all those hours of analyzing exchange platforms and gathering market data can be left to crypto trading bots.
It is important, however, to remember that you have to maintain your bots and carefully customize their settings in order to achieve the best results and make a profit. Trading bots are a great tool for both beginners and advanced traders who know how to utilize the power of these advanced software tools.