Exploring the Impact of Trading Bots on Cryptocurrencies

Trading bots have been used for years in currency exchanges and trading commodities, but they’re starting to be introduced in the world of cryptocurrencies. They’re having a huge influence on trading and cryptocurrency prices as well. Let’s take a closer look at the impact of trading bots on cryptocurrencies.

An Introduction to Trading Bots

Trading bots are simply computer programs that execute trades automatically based on criteria you’ve programmed in or, in more advanced cases, analysis of trends it recognizes. They run on software, while the more advanced ones utilize artificial intelligence. Depending on the bot’s settings, it may recommend trades or actually take action, executing trades.

How Bots Are Used

Bots are easily set up to monitor prices and exchange rates. A more advanced Bitcoin trading bot will handle trading according to human-selected criteria. Many of these cryptocurrency bots require a subscription fee to use; this fee offsets the development costs and cost of maintaining the servers and software on which they run. Gekko and ZenBotare an exception to this. This open-source cryptocurrency trading bot is available via Github, though they have limited functionality.

Trading Bot Functionality

While nearly every cryptocurrency bot can handle Bitcoin trades, you need to verify that a bot will trade in other currencies. Many cryptocurrency bots let you trade on various exchanges, but again, verify that the bot works on the exchanges you want to use.

A few enable high-frequency trade execution. Even fewer have a paper trading function, letting you privately run tests of scenarios. This is like the sandbox or training phase many trading sites let you try out, entering transactions and seeing what the result would have been had you invested for real. Backtesting is when you enter a scenario and compare it to historical trends.

Charting is a standard function for any trading bot. Arbitrage and stop loss limits are more advanced logical features, so they are less commonly available.

The Pros and Cons of Using Bots

One of the advantages of a bot is that it can run the trades per your set criteria on its own,as long as you tell it to run. You don’t have to monitor the market, and in the case of advanced bots, you don’t even have to wait for a pop-up in a chat box telling you now is the time to buy or sell.

There are downsides to using cryptocurrency trading bots. Flash crashes can occur because bots are trading with each other a hundred times a minute. They tend to move up or down together until, somewhere, a hard stop by one algorithm causes the rest to stop and start correcting. If you’re going to use a bot, put in hard stops and other limits so that you aren’t left selling at the bottom before things correct or buying at the peak before prices return to normal.

Conclusion

Cryptocurrency bots range from basic charting and reporting tools to AI that executes trades on multiple markets. Cryptocurrency bots make trading easier and faster, but users shouldn’t set them and forget about them.