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What are Cryptocurrency Trading Bots and How do they work?
- Harina Rastogi
- Mar 08, 2022
Artboard 1.jpg "What are Cryptocurrency Trading Bots and How do they work?")
“Whenever the price of cryptocurrency is rallying, people start spending a lot more.”
– Erik Voorhees
If we compare stock markets to crypto markets then the major difference is time. In stock market there is fixed opening and closing time for buying and selling whereas in crypto trading you can trade 24*7. It makes it more volatile and heavily trafficked.
Prices fluctuate every second. Many apps offer real time price fluctuations and some show a lag of a few seconds. Thus, it is very difficult to keep a track of the changes happening in prices. Being humans we cannot sit all the time and keep a check on it.
What should we do then? Are there any alternatives using which we can track the price movements? The answer is Yes. We have trading bots that help us not only in tracking the price but so many other things.
In this blog, we will learn about crypto bots and how they work and benefit us.
What are Cryptocurrency Trading Bots?
When we hear about crypto bots, what intrigues us the most is their functioning. Who controls them? How can they decide what is right and profitable? Let us first define what crypto bots are. In simple terms- A crypto bot is an automated system that functions on behalf of the user. It keeps a track on the movements of cryptocurrency and makes decisions of buying and selling.
You set the requirements and when they are met, the bot will execute the trade. Let us understand with an example. Suppose you want to buy 1 bitcoin at less than 30 Lacs. The current price is more than 30 Lac. In this case you will set the condition that whenever the price is below 30 Lakhs, 1 bitcoin should be bought.
So, if you are busy or working and forget about checking the price then the crypto bot will buy 1 bitcoin for you at your set condition.
This way you do not have to worry about it. Ultimately the whole process gets completed without any issue. You do not have to complete the formalities of buying and selling as they are completed automatically through the bot.
There are 3 steps in which they function:
-
Generation of Signals
-
Allocating the risk
-
Executing the trade
These bots can analyze the data and risk and then they can predict which currency is more suitable and which will be more risky. The main part is that you can direct the bot what it has to do. You are one who sets the functions, conditions and bots just execute them.
Moreover, these automated systems aka Crypto bots are much more efficient and smarter than humans. For working professionals and people that are either busy or working this is the best way to carry out trade.
(Also Read- Future of Cryptocurrency)
How do Cryptocurrency Trading Bots Work?
“Governments will buy Bitcoin when it is 10 times more expensive than it is today.”
- Olawale Daniel
Cryptocurrency market is notorious and these changes make it highly volatile. Crypto experts cannot even predict the change that can happen. So, what about people like us that love to invest? For us crypto bots are the best solution.
Cryptocurrency trading bots work by providing certain services. Given below are the services that every crypto bot offers.
Services offered by Crypto Bots
-
Data Analysis
There are hundreds of cryptocurrencies in the market and it is very difficult to keep a track of all of them. We often choose those which are performing well and have shown growth in a long time. How do we track all this information? Tracking is one thing and keeping it in mind is another.
Cryptocurrency bots offer data analysis services to us. In this they compile all the relevant market data from all possible sources and analyze it. It is the user's responsibility to set the regulations about the information they want to seek.
-
Risk Prediction
Be it stock market or crypto market, trading risk is present. But since trade happens 24*7 in cryptocurrency market risk is probably greater. We cannot decide and predict the risk present. We often make the wrong choices and repent later.
Crypto bots help us by eliminating the potential risk. How do they do it? These trading bots can analyze the data and predict the risk based on it. This prediction is far more accurate than human prediction because bots can tap more data in less time.
-
Buying and selling the asset
Have you ever purchased the wrong quantity of currency? There are so many people that often enter the wrong amount or wrong quantity and make the wrong purchase. In order to prevent such things, bots can be very useful.
If you plan to do a small purchase then you can enter the details and terms and whenever the set terms are met your purchase will be done. These bots use Application Program Interface to successfully make the buying/selling decisions.
(Also Read - Super Currency)
Downsides of using Cryptocurrency Bots
We know how useful Cryptocurrency bots are to us. But are there any disadvantages? Yes. For trading experts and people with a good amount of trading knowledge, bots are not very useful. For them bots only offer marginal gains.
Moreover, entering the information based on wrong facts can also create issues. One can suffer losses and the opportunity cost can be high. Crypto trading exchanges also use bots thus it is very difficult to perform better.
In order to decide the worth of trading bots we need to analyze certain factors. The knowledge of trading, time that we can devote for trading and researching, portfolio etc.
For an amaetur trader bots can be of great use but as you start learning and become better these bots are not of much use. Why? Because you know the patterns, the way things can take turns, risks involved, and many other prevalent conditions. It is a matter of personal choice whether or not you use cryptocurrency trading bots.
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