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What is a Crypto Trading Bots & How Do They Work?

Updated on :  

08 min read.

The world of crypto can be quite volatile. On top of that, crypto investors tend to trade their digital currencies round the clock from around the world. It becomes quite challenging for humans to manage and oversee crypto trading given the frequent changes in prices, occasional slowdown of crypto exchanges and slower transactions. 

To obtain the best trading results, one needs to monitor the crypto exchanges round the clock, which is humanly impossible.

This is where crypto trading bots come in. 

Let’s dive in to know more about crypto bots. 

Crypto trading bots: What are they?

Crypto trading bots are automated computer programmes that automatically trade cryptocurrencies across multiple platforms. They work on behalf of an owner or user. These bots buy and sell crypto assets at the right time to generate profit. 

These bots are useful for modern investors with various assets to pay attention to. Moreover, as you may already know, the cryptocurrency market is highly volatile. For you, it’s not humanly possible to monitor the market 24/7 and make profitable decisions. It takes minutes for the whole market to crash or reach a stage of euphoria. Some investors cannot give enough time to the crypto market to take advantage of the price change. 

You can use them to engage in crypto investing around the world, round the clock. They can quickly react to the change in prices and conduct profitable trades. One of the most popular types of crypto bots is the arbitrage bot. It analyses costs across different exchanges and makes trades by taking advantage of discrepancies. 

Let’s take an example for you to understand clearly. The price of Bitcoin tends to vary across exchanges. Arbitrary bots can move fast enough to beat exchanges that delay updating their prices. It is not always possible for a human being like you to do so. Hence, using such a bot can prove profitable.

There are other types of bots that track historical price data to calculate the best trading strategy. A bot of this type can also prove beneficial for you. Also, other bots conduct trade based on trading volume and price. 

How do crypto trading bots work?

Crypto trading bots work on three basic functions. They are:

  • Signal generator

This crypto bot function helps it make predictions and track probable trades based on technical indicators and market data. Based on the data it collects, it generates a buy or sell signal. 

  • Risk allocation

The risk allocation function takes the buy or sell signal from the signal generator and decides how much to buy or sell. It takes these decisions based on a specific set of parameters and rules.  

  • Execution

This function conducts the actual buying and selling of your crypto assets. It converts signals to API key requests that exchanges can understand and process.   

Many crypto bots are free to use, while some have hefty charges. As an investor, you should seek bots that best fit your investment strategy. Each bot needs a unique combination of hardware and software to function. Furthermore, you must have accounts set up in different cryptocurrency exchanges for your crypto bots to function optimally. 

Top 10 crypto bots

Based on your requirement, there are a lot of crypto bots to choose from. Some of the best in this field are:

  1. Pionex
  2. Shrimpy.io
  3. Coinrule
  4. Cryptohopper
  5. Botsfolio
  6. TradeSanta
  7. Zignaly
  8. 3Commas
  9. HaasOnline
  10. Bitsgap

Advantages of crypto bots

Advantages of crypto bots

There are countless advantages of a crypto trading bot. They are:

Speed

With the help of their unique algorithms, crypto trading bots can operate at great speeds and efficiency. They can also process gigabytes of data per second. A human mind does not have the power to function at that level.  

Non-emotional

Most of the time, when humans trade, their decisions are influenced by their emotional feelings. This causes errors in judgement and can result in losses. Using a crypto bot rules out this probability, as bots are emotionless and can work rationally in any situation. 

Diversification 

When investing, you should never put all your eggs in one basket. You can use multiple bots to diversify your investments and reduce the risk factor in your portfolio. 

  1. Trading discipline

As crypto trading bots work on a fixed set of principles that you set, they work accordingly in any given scenario. This helps you get consistent performance from them at any given time.  

Trading simulators

Bots have the advantage of providing you with backtesting and paper trading. You can use these features as a simulation tool to check out the success rate of your investment strategy. 

Crypto trading bots may help you a lot in your day-to-day investment activities; however, they can never completely replace a human mind. Even if you have multiple bots at your disposal, you will need proper knowledge to use them to their full potential. You can use crypto investment bots as an aid, but a proper investment strategy should always be your main weapon.