As with traditional trading markets, investors buying and selling cryptocurrencies can automate their own trading strategies with the latest bots. This can be a daunting topic for novices, but in the following guide, you’ll find all the essential information you need to try crypto trading bots for yourself.
The different cryptocurrency trading bot types
Crypto trading bots are developed according to specific strategies for buying and selling, across different cryptocurrency and traditional trading markets. The crypto trading bot types available cover trend trading, coin lending, arbitrage, and market making.
A number of companies are struggling with each other to gain domination of the cryptocurrency market, and various bots (as downloads or in the cloud) can be integrated with the leading exchanges. Fortunately, cryptocurrency trading bots are designed to appeal to novices and seasoned traders alike.
As a newcomer, you’re bound to be impressed by the range of products incorporating signals, features for risk management, and indicators able to align with virtually any trading strategy. But with so many cryptocurrency trading bot types on offer, how do you know which one to choose?
Below, we explore the different cryptocurrency trading strategies which may be automated using bots.
Bots designed for arbitrage are a popular choice. Arbitrage refers to taking advantage of pricing imbalances across multiple markets when making a trade, a strategy which is particularly relevant in crypto markets lacking the high standards of efficiency.
As traders can make a profit by buying and selling assets at the same time when imbalances occur, arbitrage trading bot types monitor changes in a specific cryptocurrency’s pricing across various markets. They will buy coins whenever and wherever prices come in lower, before selling them at a higher price.
Traders should be aware, though, that arbitrage trading bots became popular before the hype of cryptocurrency reached new heights, and they’re more difficult to utilize well as exchanges have narrower spreads than before.
Trend trading bots
These cryptocurrency trading bot types work by evaluating an asset’s momentum and buying or selling orders based on its analysis. Trends demonstrating an increase in prices will cause trend trading bots to go into a long position, while dips in price trigger short positions.
Basically, trend trading suggests assets will go on to keep moving one way, and these bots take advantage of this to generate a profit for traders. Bots can leverage certain indicators to recognize trends, such as price action, trend lines, momentum indicators, and more. Traders should add indicators when setting new bots up, to ensure they execute actions relevant to the owner’s goals.
Market making bots
Market maker crypto trading bots use order book spreads to cultivate profits for investors. So, as assets continue to be traded, their spreads will widen, enabling market maker bots to bring in more profits.
Market maker bots execute orders with a rate higher than that on the market and earn revenue for the owner. They monitor activities to find markets offering a bigger spread all day, every day, to provide investors with advantages related to volume, pricing, and time.
The crucial point here is selling to investors at a greater value than specified selling prices consistently.
Coin lending bots
One option for making profits on cryptocurrency trading is to lend margin traders coins, on the understanding that they’ll pay them back with an added percentage, bringing a real return.
Certain exchanges — Poloniex, for example — offer this option, though it can be a tedious process. Users are required to manually establish a set of parameters whenever margin traders pay the coins back and new loans are processed.
Using coin lending crypto trading bots allow investors to automate this drawn-out process, reducing the amount of time required to find the best rate of interest and exploiting potential opportunities that arise.
When setting one of these bots up, traders can configure their own strategy, keep lending back until interest rates reach a certain point, select one of many currencies, and determine the date by which the loan must be returned. A number of coin lending cryptocurrency trading bots are available for free, and traders may find others on the exchanges offering margin funding.
Cryptocurrency trading bots empower investors to gain an advantage over fellow traders. Automating processes and actions gives you a stronger opportunity to compete with other people looking to make a higher profit.
Crypto trading bots designed to focus on momentum opportunities are a powerful tool, while you can leverage arbitrage bots to act when price imbalances appear across multiple markets. If you want to eliminate tedious manual input, coin lending bots can take care of this, while market makers take advantage of spread fluctuations.
With all bots combined, traders can streamline their process to great effect.