Trading robots are programs that monitor market conditions and place trades using pre-defined algorithms. This allows for high frequency automated trading to take place, which is estimated at 80% of the stock market currently. A trader can create a program based on their own strategy, placing orders as an algorithm dictates.
This does not mean that users don’t need to monitor the market 24/7, but it can be used to create trading programs that are based on a strategy.
Computers can also make trades thousands of times faster than humans, making it possible to use strategies that are not available to regular traders. This is known as High Frequency Trading and it has been very popular among high-end users. This, combined with the fact these assets are digitally native and that the markets are always open makes it easy to see why bots have made a huge impact on the cryptocurrency world.
What are the different types of trading bots available?
Bots that follow trends are some of the most popular because they automate much of what a trader should do. Trend bots can help buy and sell based on the direction of markets, but it’s important to remember these trading tools aren’t perfect. They need to be trained so they can consistently outperform traders.
Arbitrage bots are designed to profit from the price discrepancies between multiple exchanges. These programs monitor prices of assets across many markets and if Bitcoin goes for slightly less on one exchange than it does on the other, they will quickly buy the cheaper coin in order to turn around a small profit. Although these opportunities do exist, they don’t last very long since arbitrage bots have made market more competitive which has minimized such chances over time.
Scalping programs work well in sideways markets, rather than following a trend. Scalpers make money by buying and selling along the bid-offer spread. They buy at the bottom and sell at the top for small spreads as pennies can be difficult to see real returns; however if automated with sufficient size this strategy provides significant returns which is also popular among traders who use bots that have become quite combative like arbitrage.
What are the positive and negative effects of trading robots?
Trading robots make markets more efficient and bring much needed liquidity to exchanges. Trading robots were once reserved for institutions however they have now become accessible to the general public giving people the opportunity to take advantage of markets and make profits on autopilot.
The negative aspects of trading robots is that they can manipulate exchange volumes and make exchanges look like they have active market conditions when it is engineered to manipulate the market. Trading robots can be used for pump and dump scams.
Conclusion: How to get started with trading robots
Crypto trading robots are changing the trading scene. You don’t need to be a programmer and build your own trading robot there are already trading robots such as Cryptohopper, TradeSanta and 3Commas which make it easy for beginners to choose what they want to trade, on which exchanges and the trading systems can select a trading strategy based on market conditions. Other popular trading robots include immediate edge, bitcoin trader, bitcoin revolution and immediate profit.