Introduction:
If you’ve ever traded cryptocurrency, you know the experience can be frustrating at times. No matter how hard you try, it can seem impossible to make consistent profits through trading on the market without the use of tools and apps like trading bots and candlestick charting software.
But with so many negative stories about bots and other apps out there, how do you know if it’s safe to use these tools or if they’re just scams?
A quick history of trading bots
Traders have been using trading bots to optimize their buying and selling habits since 2012 when trading software firm Tradewave released a beta version of its platform. Technology has come a long way since then. In fact, today's bots are capable of executing trades based on a number of different variables including news, price changes, and even actions taken by other market participants.
This level of sophistication makes them particularly appealing to day traders and professional investors looking for an edge. Even so, most platforms require a minimum deposit of between $250-$1,000—clearly not ideal for all types of investors.
How do you trade with a bot?
If you’re serious about getting started with trading bots, it helps to start with a general overview of how they work. In a nutshell, you create an account on a platform like Bitfinex or Poloniex and exchange your fiat currency (USD, EUR, CNY) for a cryptocurrency (Bitcoin or Ethereum). Then you can use that cryptocurrency to trade against another cryptocurrency or fiat currency on any one of those exchanges.
Depending on your preferences and tolerance, you might set up multiple trading bots so that when one bot detects an arbitrage opportunity—or some other event you’ve configured it to watch for—it buys up to a certain amount of cryptocurrency at one price point and then sells at another.
How does a bot make trades?
Software that scans markets and automatically places orders on your behalf. They work around-the-clock based on pre-determined criteria. Many people have taken advantage of these tools to automate their trading, but there are some clear drawbacks you should know about first. The first thing is that trading bots don’t come cheap—you’ll likely pay anywhere from $20 to $100 a month for one bot, depending on its features and function.
It's also important to note that most can be used only through one exchange (like Bittrex or Poloniex). While there are multiple exchanges out there with different coins, using a trading bot will require you to set up an account with multiple exchanges—and remember those costs we mentioned earlier!
What are the advantages of a bot over human traders?
Although human traders might be more adept at thinking on their feet, experienced developers and programmers can create a software bot that uses algorithms to analyze market conditions and make faster (and more accurate) trades. The key advantage of using a bot is its ability to buy low and sell high without requiring any emotional input from users.
For example, if you're using Coinbase, it takes a lot of time and effort to buy small increments of bitcoin over time—you have to go through Know Your Customer (KYC) verification each time, which means that you need to verify your identity every few months before buying/selling cryptocurrency. The process requires an ID scan or picture as well as providing details about your address, which makes it especially inconvenient for daily transactions.
Where can you use a bot in cryptocurrency exchanges?
Anyone who has spent a reasonable amount of time looking into cryptocurrency trading knows that it’s not an easy game to play. There are many issues you’ll have to deal with, including limited liquidity and high volatility. These two factors can make it difficult for newcomers to enter markets, which is why cryptocurrency exchanges often rely on bots in order to provide more support for their customers.
It may be tempting to use a bot yourself as well if you feel like you could benefit from extra assistance when making your trades, but keep in mind that there are specific rules regarding how these programs can be used on some platforms. Before using any bot on an exchange, check their policies so that you know exactly what is or isn’t allowed!
Do I need programming skills to use a bot?
No. Anybody can use a trading bot, even if you have no experience coding or scripting. We’ll cover exactly how to set up an automated cryptocurrency trading bot, so keep reading!
As always, there are trade-offs associated with investing in cryptocurrency; be sure to understand them before getting started. If you do want to dive into technical details about setting up your own automated trading bot, see our How to Build Your Own Bot guide for more information. And feel free to share any of your own insights in the comments below. :)
Who makes these programs and where can I get them from?
There are many trading bots currently available, however, they aren’t all created equal. There is a vast difference between programs that work and those that don’t. If you want to start making money with cryptocurrency trading bots, it’s important to first consider who makes these programs and where can I get them from.
Most programs available today operate on centralized exchanges that have been hacked or compromised at some point in time. If there isn’t any regulation or oversight, then what stops a developer from cheating and profiting off of your trades? Additionally, most of these centralized exchanges control customer funds and private keys which makes it difficult for users to recover their assets if something goes wrong.
So what’s the verdict on cryptocurrency trading bots – Are they worth it or not?
First, a disclaimer: I am not endorsing any particular trading bot. I don’t use them for crypto, so I can’t give you my personal experience. What I can tell you is that trading bots are becoming more popular as cryptocurrency becomes more mainstream and its value grows exponentially higher.
As they grow in popularity, they also become increasingly easy to use. For example, if you want to use one of these bots on Binance (which many people do), it only takes about 5 minutes. That said, there are still some things you should know before deciding whether or not a bot is right for your needs.
Conclusion
While cryptocurrency trading bots are becoming more and more popular, they are not going to help you automatically make money. The market is too fast and volatile for that. Ultimately, you’re still going to have to do your own research and learn as much as possible about trading bots and cryptocurrencies before you try them yourself. But once you do know what you’re doing, there is potential for substantial profits! If nothing else, trading bots can save you time so that you don’t have to spend all day researching every cryptocurrency trade. That alone could be worth it. It's certainly something to consider. Just remember: when using a bot, it's important to use a reliable one (see below).
Otherwise, you're just asking for trouble. Here are some questions to ask yourself before trying out a bot: How reputable is the company behind it? Are they open about their identity and history? Are their bots safe from attempts or bugs that could lead to a financial loss? Can I talk with someone if I need assistance or have questions about how their service works? Do I feel comfortable giving them my credit card information and/or bank account details (if required)? Is their software available on both desktop computers and mobile devices?
