In 2017, the cryptocurrency market cap was worth a whopping $572 billion. With that much floating around in the crypto space, it makes sense why both beginning and savvy investors have turned to trading bots for help.
To put it plainly, a trading bot is an algorithm that executes trades on its own. There are a variety of benefits to using a crypto trading bot as opposed to making all of your trades manually.
If you trade cryptocurrencies and want to learn more about trading bots then you came to the right place! Read on, and we will walk you everything you need to know about them, from how trading bots work to when and why you should use them.
How Crypto Trading Bots Work
When a user enables a bot, they give it their API private key and API public key. The bot uses these keys to let the exchange know that it has permission from you to access your account information on that exchange.
API keys can be used by third-party services to access data within an exchange. A crypto trading bot can gain access to market information, trade on behalf of the user, and also access information on the user’s funds in their account. When a user deletes their API keys on the exchange, they then withdraw the bot’s access to their account.
The main two settings that are required for trading bots to work properly is the ability for them to collect “balance” information from your account on the exchange and the ability to make a trade.
The Purpose of Crypto Trading Bots
The main purpose of crypto trading bots is to perform actions automatically, without the need for human interaction. Bots are often used when a task is either too difficult, complicated, or time-consuming for a human to complete.
The tasks that bots are asked to execute range from making a single trade to running a diverse portfolio. Without a bot, a trader would have to go online, access their account, and make a trade every time they wanted to add or reduce their position. While this may be fine for the casual user, more intensive traders may want a bot to execute a specific strategy continuously and nonstop.
When to Utilize Crypto Trading Bots
There are bots out there that are designed to do all sorts of different tasks. Some of these tasks include portfolio management, smart order routing, rebalancing, data collection, and so much more.
With that said, using bots to take over every little action within your portfolio might actually end up being more work for you than just doing some of that work yourself. Bots are best utilized when we have them execute tasks that are either too complex or time consuming for us to do. And when you use a bot, you can still perform your own actions as well.
In order to pick the bot that is best for you, consider which aspects of crypto trading you find the most burdensome. Take a look at the following tasks and see if your portfolio could benefit from automation.
According to a study on rebalancing, done over the course of one year, it was determined that rebalancing one’s portfolio every hour would outperform other rebalancing rates.
Now, taking time out of each hour of your day to rebalance your portfolio is almost totally unreasonable. And if you manage a portfolio that is truly diversified, then it is going to take an even more significant amount of time to rebalance. But still, rebalancing at this frequency is one of the best ways to perform well on an exchange.
This is just one of many examples of the tedious and time-consuming tasks associated with trading. The beautiful thing about trading bots is that they don’t worry about how time-consuming something is.
Bots are able to instantly make programmed and precise calculations and make trades immediately. All you need to do is give the bot the correct instructions and it’s off to the races.
As users spend more time making trades and understanding price points, they start to understand the true importance of precision. Though nobody can predict a crypto’s highs and lows, there are calculations that can get pretty close.
For serious traders, precision is everything. Unfortunately, people are fallible. Luckily, bots aren’t. If you give a bot a set of instructions, it will perform its task every time and in a precise fashion.
Here’s an example. Let’s say you wanted to sell ABC when Bitcoin hits $10,000. To do this manually, you would have to watch the stock constantly or wait for a notification to tell you when it reached that price. Even if you saw the exact moment it hit the desired price point, you may be too late.
In the time it takes you to actually execute the trade, the price would have most likely changed. It may have only changed by a few dollars or it may have changed more. With crypto, it is never easy to say how rapidly prices will fluctuate. With a properly programmed bot, you are going to sell at that $10,000 mark the instant it occurs.
Those who come from the world of trading U.S. stocks may be accustomed to trading hours being open between 9 am and 4 pm. This is not the case for trading crypto.
The crypto market never closes. There are no business hours for cryptocurrencies. A truly involved crypto trader would have to watch the market constantly to get a complete view of what’s going on.
Of course, this is impossible. You need to sleep. And you need to do other things with your life as well. But, as you might have guessed, bots don’t sleep. And they most certainly don’t have anything else to do.
It is important to note that when you use bots, you aren’t forced to implement only one strategy and be stuck. You can utilize different portfolio strategies for different times, situations, and so on.
For example, you may find it better to have a more aggressive strategy in the day when you can have the opportunity to respond when necessary. And then you can have a more conservative and defensive strategy for the nighttime when you won’t be able to watch trades.
Using bots in this way can help you go to sleep without stressing that you are missing out on a great trade or that your portfolio might suffer through the night.
Best Crypto Trading Bots
Over the past few years, countless automated trading bots have popped up in the world of crypto. Some of these bots are flawed, don’t work at all, or may in fact be scams to one extent or another. But, with that said, there are several powerful and trustworthy bots out there that can improve the portfolio of even the most experienced trader.
Different bots are used to accomplish different tasks. Take a look at the bots below and see which ones can best benefit you.
HodlBot is a trading bot that enables users to make custom portfolios, index the market, and also rebalance their crypto portfolios automatically. HodlBot understands that a diverse portfolio is one of the best way to improve returns while decreasing risk. That is why they created the HODL indices. This way, users can have diversification instead of just picking individual coins.
For account values that are $500 and over, the service costs $10/month with a 14-day free trial. For accounts with values of less than $500, the service is free forever.
Cryptohopper is one of the preferred trading bots for beginning and experienced traders alike. A seasoned trader can program their own strategy’s into Cryptohopper’s bot and have it operate round the clock.
People who are new to crypto and don’t have their own strategy to implement can copy or buy strategies from the service’s 40+ experts. The service also has a 7-day free trial.
They offer different tiers depending on factors like the amount of positions and number of coins the user intends to have. Aspects like these matter for a trader as there are all kinds of cryptocurrencies that one can invest in. Cryptohopper’s Starter Tier is $19/month, Medium is $49/month, and Pro is $99/month.
Blackbird Bitcoin Arbitrage
Arbitrage is when you purchase an asset in one market and sell it (hopefully at a higher price) in a different market. Blackbird Bitcoin Arbitrage is a crypto arbitrage bot that executes automatic arbitrage between Bitcoin exchanges.
The cost for this service is free although it does require coding.
Using the Right Bot For You
After looking at the above advantages of using a crypto trading bot, it becomes clear that all crypto traders could benefit from at least some automation and precision. If not a lot.
Looking to learn more ways to invest in crypto like a pro? Check out our guide on how to make some serious money in Cryptocurrencies.