What is automated bitcoin trading?
Did you know that over 80% of transactions made in the crypto world are a result of automated trading? Institutions use automated bitcoin trading, and a growing number of individuals as well.
This does not come as a surprise as the benefits and potential for income are endless. What is necessary, however, is to do thorough research before starting an automated bitcoin software, as the potential for loss is high as well.
This article aims to present different types of trading bots, the pros, and cons of using them, as well as the best trading platforms.
What is automated crypto trading?
The need for constantly monitoring the crypto market has been significantly reduced with the appearance of automated crypto trading. Automated crypto trading uses algorithms to perform instructions set by the trader.
Trading bots represent software that uses algorithms to execute orders and open and close positions. You can profit from the trade without being actively involved in it with the right set of instructions and a great trading strategy.
The bots typically use APIs (Application Programming Interfaces) to manage your account and the exchange platform to perform the activities. The aim of trading bots and automated bitcoin trading is to reduce human error and enlarge traders` profit.
With plenty of tools, different instruction sets, and endless possibilities for trading, automated bitcoin trading is a fantastic way for traders to get the best results from a single trade.
Crypto trading platforms
A crypto trading platform is a platform where you can exchange cryptocurrencies for either crypto or fiat money. Today, there are many platforms where you can trade, and they each have advantages and disadvantages.
- Gemini – Gemini was among the first ever trading platforms, and now it is one of the largest ones there are. You can use your automated bitcoin trading bot on this platform; just make sure to read the Bitcoin Era review first.
- Coinbase – One of the most popular platforms for trading, with the option for automated bitcoin trading, is an excellent choice for you. It is beginner friendly but also suitable for more experienced users as well.
- Kraken – Also among the first ever platforms, it is safe to use and supports a wide range of tokens. If you are interested in more than just automated bitcoin trading, here you will be able to trade with even riskier coins.
Types of cryptocurrency trading bots
There are several different types of cryptocurrency trading bots. You can choose the bot that is right for you based on your needs and preferences.
Arbitrage bots
Arbitrage bots make good use of market volatility. They analyze the price of coins on different exchange platforms. If the cost of the currency on one platform is high, they sell the currency. And vice versa, if the price of a currency is lower on a specific platform, they buy it.
The arbitrage bots are relatively simple and massively popular. Taking advantage of the ever-changing situations on the market is a great way to make a profit.
Coin lending bots
With these bots, lending coins to margin traders become much more manageable. The only thing you need to do is set clear and precise instructions.
You can set a threshold for the desired interest rate that you will receive and choose in which cryptocurrency you want to lend. Furthermore, you should select an exact date by which you wish to receive the coins back. Then, the bots will analyze the market and when the opportunity arises, you will lend the coins in great conditions.
Grid trading bots
The grid trading bots enable you to buy coins when the price is low and sell them when the price is high, thus earning the difference. Depending on your trading strategy, you can choose long-term or short-term observations of the market.
You are also in control over the risk assessment. This is because when you set the price range and choose the cryptocurrency, you set the rules.
Trend trading bots
One of the simplest trading strategies with bots is the trend trading strategy. It does not require complicated algorithms. The bot will follow the trend and make orders based on the analyses of the market. When the price is going upward and there is plenty of activity noted by the other traders, the bot will act.
Pros of automated crypto trading
Undoubtedly, there are plenty of pros when using automated crypto trading.
Improved efficiency
The program will immediately detect when the conditions for making orders are right. Hence, no time is lost which improves efficiency and increases the chances of making a profit. In a volatile environment, even a few seconds matter and can determine whether a cryptocurrency trading operation is successful.
Reduced risk of human error
As humans we make mistakes. Sometimes this is because of physical factors such as lack of sleep, and sometimes it is due to emotional factors. Often fear or the desire to earn more leads to decisions that inhibit making a profit.
With an automated bitcoin trading bot, for example, there is no room for second-guessing or any uncertainty. The most important thing is to set clear instructions in the beginning and wait for the results.
Backtesting
Whether you are a beginner or have plenty of experience with automated bitcoin trading software, performing tests is invaluable. Crypto trading bots enable backtesting in a way that they check the possible outcome of your instructions based on historical data.
You would be able to check your maximum profit or maximum loss with the trading strategy that you chose. Then, if you are not satisfied with the results, you can alter your strategy for better results.
Cons of automated crypto trading
Inevitably, there are some cons to the automated crypto trading system, and we will now present them to you.
The possibility of a technical error
Automated trading resides on the functionality of the software and your internet connection. Therefore, it is possible that technical errors occur which is one of the biggest cons of such trading.
If your internet connection is lost when the bot should place an order, it will not be possible to proceed with the order. The same applies to software, there is always a possibility of a glitch that will disable the proper functioning of the bot.
The trading bot can be a scam
There are plenty of rogue trading bots out there, and you should check their reviews on Scammer Watch before making any purchase. For example, a 1k Daily Profit System is exploiting people by taking deposits and not enabling traders to profit at all.
While automated trading makes trading somewhat easier, it is necessary to perform thorough research before making any decision.
Monitoring is necessary
Due to possible connection losses, power losses, software malfunctions, and other issues that may occur, you need to be frequently monitoring the trading system.
With this in mind, the automated bitcoin trading software is not perfect, and it is not enough to set the instructions and then leave it unattended.
Based on this set of pros and cons, and knowing different types of trading bots, you can now make an informed decision about your trading strategies.