Cryptocurrency trading has a lot of potential for generating profits. Given the right time and opportunity, a person can earn significant profits. However, a substantial part of this potential is reduced by our limitations. While stock markets are open for specific hours every day, a crypto exchange is open all the time. You can trade cryptos at any time of the day and year. This makes it impossible for anyone to monitor the fluctuations constantly. Add to it the volatility of crypto trading, it becomes nearly impossible to generate constant and reliable profits. Keeping up with the developments is hard for any investor, be it a seasoned investor or a beginner.
Crypto trading bots become helpful in this scenario. Essentially, they are just like a stock trading bot. A crypto trading bot is responsible for executing a trade on crypto exchanges. They eliminate limitations an investor might face by providing continuous monitoring and analysis.
What Are Crypto Trading Bots?
Crypto trading bots use technology like artificial intelligence, and machine learning to collect big data and analyze it. It predicts trends and monitors price fluctuations with the sole purpose of generating profits. To put it simply, crypto trading bots are software performing all the tedious and repetitive tasks in place of you. They effectively use the volatility of cryptocurrencies and turn it into a beneficial situation for investors.
Crypto bots work in two ways. Based on their configuration, they can either generate signals for the investors based on their strategy or execute transactions with the exchange. Most bots available in the market can do both these things. Another function that crypto bots perform is predicting the risk potential of a cryptocurrency. Needless to say, crypto trading bots have revolutionized the crypto market. If you are also looking for one such bot, check out https://www.bitconnect.co/bitiq/.
Reason for Using Crypto Trading Bots
Cryptocurrency exchanges are not the first place to use automatic bots. Stock markets also use trading bots to buy, sell and execute the trade based on a predetermined strategy. Their use has reduced the time required to do trading. The function of the crypto trading bots is similar to stock trading bots. They also reduce the time-consumption and eliminate tedious tasks.
Crypto trading bots function on three levels.
- The first level is analyzing the gathered data. This helps in determining the time and situation for signals to be sent.
- The next level is about understanding the risk potential of an asset. Using this analysis, the bot determines whether the cryptos should be traded or not.
- The last level is deciding whether the assets are to be bought or sold.
Advantages
Crypto trading bots have made the life of every crypto investor easier. Following are some of its advantages:
Usage
Crypto trading bots are relatively easy to use. Even without any crucial knowledge of programming, investors can use them. As the bots are customized as per the needs, it is integral for the investor to know the assets they want to trade, their strategy, and the frequency. If a user wants to operate on several crypto exchanges at once, many trading bots also offer this feature.
Efficiency
Just like a computer can do complicated tasks in a jiffy, similarly, a trading bot can quickly do things that might require a person a long time to complete. The possibility of delays is less, and there is no scope for errors. Of course, it is only possible when the bot has received the precise configurations and strategies. With the time-consuming tasks done by an efficient bot, the entire process of trading becomes straightforward.
Profit Generation
Trading bots can help you generate huge profits or leave you in losses. The profitability of a bot is directly proportional to the strategy it uses. There is nothing like a correct strategy. So, a lot of it depends on the circumstances under which the bot is operating and the strategies developed by its user. For beginner investors, using an arbitrage bot is best. They are best known for generating profit, even if minimal.
Managing Risk
The customizable option available to bot users allows them to set protocols for risk management. Its feature is especially beneficial for beginners afraid of losing their assets. A way bots manage risks is by allowing backtesting of strategies. It means that you can check/backtest your strategy without using real money. Historical data of the assets is used to do backtesting.
Lack of Emotions
A bot doesn’t have emotions. This lack of emotions also means that they do not experience the fear or greed that a user may feel. It allows the bot to use hard facts to make decisions. The possibility of rational decisions often yields profits.
Disadvantages
Despite their many benefits, crypto trading bots also have disadvantages. A few of their disadvantages include:
- In highly unpredictable markets, bots might get confused. In such a case, users should practice caution and take matters into their own hands.
- If there is something wrong with the programming of the bot, it will not function properly and can even cause losses.
How Safe Are They?
Using a reliable and good crypto trading bot is safe. Much like everything else, several types of bots are available in the market. However, only a few of them are safe and profitable. It is best to check the bot carefully and properly before purchasing it. While they are legal, some brokers might not allow their use. It is integral to check the safety of your information and assets. Check the following:
- Whether the bot allows you to set a unique API key for all the different exchanges.
- The programmer has no access to the API keys you use.
- Check the bot’s credibility. It is paramount to ensure the bot’s reputation and reviews in the market before handing your exchange account information to it.
- The number of exchanges the trading bot is compatible with.
Final Words
Crypto trading bots are a sure-shot way of reducing your work and generating huge profits, provided they are used properly. Perform due diligence before buying and utilizing a trading bot to ensure the safety of your assets.
