There are some common misconceptions about automated crypto trading. Some people consider it magical, while others believe it’s a scam!
Time waits for none, and financial markets are not an exception. Notably, keeping up with the fast-paced price changes is the key to success in the uncharted territory of crypto trading.
Luckily, technology has made it possible to automate many trading processes, including market analysis, analyzing trends, and ordering the execution. This enables you more time for planning and establishing a foundation for long-term cryptocurrency trading success.
What does Automated crypto trading mean?
Automated crypto trading, usually called automated cryptocurrency trading, uses computer programs to sell and buy digital currencies on one’s behalf. These software applications react to market changes to trade at the optimum moment. Moreover, automatic crypto trading removes all the uncertainties and emotions from manually selling or buying cryptocurrencies.
The majority of automated crypto trading platforms are still Application Programming Interface (APIs), despite some more recent crypto bots using smart contracts and operating directly on the blockchain. The term “API” refers to an application programming interface, which allows your account to communicate with a cryptocurrency exchange so that it can open and liquidate positions on behalf of users based on predefined criteria.
Automated crypto trading gives you many advantages over manual trading, including continuous work without rest and unbiased emotions.
Many types of crypto trading bots are available, each different regarding their features, functionalities, and pricing. The most famous one is arbitrage or grid trading bots. Some automated crypto platforms have different features, like the hodl function on 3Commas. This doesn’t just trade. It enables users to buy and hold crypto automatically at cheap prices. User is free to select the cryptocurrencies they want and a bot to assist them precisely.
Generally, automated crypto trading goes through 4 significant steps:
- Data analysis
- Signal generation
- Risk allocation
Is Crypto bot trading profitable?
Manual trading can be viewed as a less common approach. However, algorithmic trading bots have actually taken over the financial sector to the point where they now control the majority of Wall Street activity. Bots are currently used to trade nearly anything, including equities, foreign exchange, and bonds, in addition to cryptocurrency.
The primary reason for this is quite understandable. It’s that Bots are better decision-makers than humans. Also, they aren’t biased by emotions and stick to their trading strategy when markets are volatile.
Remember that crypto trading bots aren’t perfect and unable to eliminate all risks. However, they can automate trading processes to assist both beginning and seasoned traders in turning a profit. It’s essential to have a fundamental understanding of the market, trading rules, and related technologies for a bot to operate well.
How much does a crypto trading bot cost?
The features and functionality a user is searching for will determine how much a cryptocurrency trading bot will cost. Some cryptocurrency trading bots are free, while others may have a monthly cost of several hundred dollars.
Is Crypto Automation Legal?
There is nothing illegal about using a trading bot in any jurisdiction where crypto trading is allowed. In the traditional financial market, bots are is quite commonly used and regulated. Machines now execute many stock trades; the same goes for crypto trading.
A bot is simply a way of trading that doesn’t need a person to execute the trades manually-it isn’t breaking any laws.
However, there are many limitations to all this. Some cryptocurrency bots are outright frauds, whereas others utilize shady tactics that can be considered illegal or unethical. Examples of this include pump-and-dump schemes and referring customers to unlicensed brokers who can steal your money without providing any goods or services. There is a chance that these bots operate illegally.
Do automated trading bots work? The problem isn’t if they work; it’s how well they work. Their effect is also determined by various factors, including the platform and bot used and the level of experience and expertise the user has.
Advantages and Disadvantages
There are several advantages and disadvantages of automated crypto trading. Here are some of them:
- It lessens the errors as everything is automated according to the set trade parameters. In this way, traders will not hesitate or second guess their decisions.
- It can be back-tested by using historical data to generate simulated results. A trading strategy can be improved and refined using this process before being put to use in real trading. The rules for any automated trading system must be explicit and devoid of bias. Additionally, the computer needs precise instructions because it cannot make assumptions. These traders can check these factors against historical data before investing any money. Backtesting is a technique for testing trading ideas and figuring out the system’s expectancy or the typical amount of profit or loss a trader might anticipate for each unit of risk.
- Traders take a methodological approach and adhere to the rules, avoiding costly mistakes like chasing losses or entering into trades without a plan.
- Automated Crypto trading is way faster than humans. Additionally, they are considerably faster than people at responding to changes in the market.
- It enables using various strategies or accounts, thus diversifying their portfolios.
- For automated crypto trading, you need high start-up costs. Also, operational costs must be paid regularly to keep the system running smoothly.
- Also, it’s hard to maintain the ongoing costs. These expenses may accumulate with time and reduce profits.
- Crypto trading bots are built to follow regulations and can’t adapt to altering market conditions. This rigidity can result in missed possibilities or poor trades.
- Like other systems, an automated crypto trading system can go through some technical and mechanical issues like network outages, power outages, and data errors.
|Minimizing emotions||Requiring supervision|
|Maintaining the trader’s discipline||Mechanical failures|
|Allowing backtesting||Can perform poorly|
|Allowing multiple accounts||High start-up costs|
Is automated crypto trading safe?
The safety of automated crypto trading is based on the system design and if trades are regularly monitored. However, you can’t just leave them in place and hope that they’ll manage market volatility and protect traders from losses. However, they might be a dependable instrument that makes trading cryptocurrencies easier by streamlining procedures and enabling hassle-free trading around the clock. Being automatically emotionless, they help prevent decisions related to risk and monetary loss due to human error or vice-versa.
It is to be noted that before spending money down for a trading account, do full due diligence on the projects and always ask queries to clear your doubts. Otherwise, you may wind up losing money if you don’t.