Saturday, October 26, 2021

Crypto Robot Trading: Types and Functions

When it comes to trading the cryptocurrency market, using bots is almost as mandatory as making profits to survive. You can try not using them for a while but you will get exhausted. Bots make it a whole lot easier to execute our trading strategies and often are able to scale the strategies for maximum profits.

But not all bots for robot trading are built equal and not they most certainly different bots do different things. It all depends on the kind of trader the use is and the purpose they are seeking from their software. For this reason, we will be discussing some for types of cryptocurrency bots available. So let’s dive in.

Types of crypto trading bots

Arbitrage bots - these are used to trade on price difference opportunities between different trading platforms. This works simply by purchasing a given asset in one platform for a lower price and simultaneously selling the same asset in another platform at a higher price.

The opportunities to engage in arbitrage trades are numerous in the cryptocurrency space but the trader often needs to act with speed and accuracy and that is where these bots come in handy. They can monitor prices across several exchanges for multiple assets while trading perpetually.

Market making bots - market-making almost applies the same concept as arbitrage but instead of separate exchange platforms, this occurs within the same platform. A trader who engages in market making will create several opposing trades on the exchange’s order book i.e., buy and sell orders, in order to profit off the price spread of both sides of the order book. More often the sell orders are priced lower than the buy orders and this spread presents an opportunity for traders to profit.

However, the spread margins are not that big so to make a profit, the trader has to engage in the game of numbers and make several trades and this is a great opportunity to use bots. Additionally, most exchanges offer a fee to market makers for executed orders so those are two ways that a market maker using a bot could profit.

Portfolio automation bots - sometimes traders don’t want to actively trade. They could either be taking a break or just changing a trading strategy to long term holding their assets. Sometimes it could be that they are just medium to long-term investors and desire to see reasonable gains for their cryptocurrency. However, cryptocurrency is extremely volatile and rarely do most traders have equal sizes of coins in their portfolios.

One coin could gain or lose more than the rest and the trader needs to rebalance their assets to ensure maximum profits. Portfolio automation bots do just that - they monitor the performance of the portfolio and rebalance it according to the rules set by the trader. If one asset’s price plummets, some trader could decide to allocate a larger portion of their portfolio to that asset with the anticipation of a price reversal. The list of rebalancing options is endless.

In summary, there is a growing list of applications for crypto trading bots and this list is by no means exhaustive. One thing to keep in mind is that these bots do not replace the trader’s input and they do not guarantee results. The strategies are the trader’s the bot is just but a tool and the effectiveness of the bot is more or less determined by the experience of the trader.

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Crypto Robot Trading: Types and Functions