What Is Automated Crypto Trading?
The crypto market is so diverse that there’s never just one way to trade your funds. Exchanges offer a range of methods you can use to trade, and they don’t always need your active attention.
This is where automated crypto trading steps in. But what exactly is automated trading, and is it a good option for you?
What Does Automated Crypto Trading Do?
Normally, if you want to trade your crypto funds, you do it on your own. Trading is usually a manual process, where you select crypto to trade, build your trading plan, or schedule and manage the trades yourself. But automated crypto trading is now becoming a hugely popular method you can use to build your portfolios and make a profit.
So, how does automated trading actually work? Well, crypto trading relies on algorithms. Algorithms are sets of instructions used to solve a computational “problem”. You may have heard how social media uses algorithms to tweak your feed to your preferences.
In the crypto world, algorithms can automatically trade digital assets on an investor’s behalf. The programs that use algorithms to trade are often referred to as “trading bots”.
Trading bots use Application Programming Interfaces (APIs). These are essentially software intermediaries that can allow different applications to communicate. This means that you—or rather, your account—can interact with an exchange. These bots can use your account to carry out trades using your assets.
Don’t worry though, a trading bot does not have full control of your assets. There are predetermined terms or criteria you can set for the bot to follow.
Investors often use trading bots because they can operate all day, every day. This means that they can quickly catch new trends or changes in the market, and can therefore make decisions far more quickly. In short, bots let you take advantage of the crypto market without having to do very much at all.
Trading bots are also a solid option for those who have little experience in trading and don’t understand the crypto market very well yet. It’s easy to make the wrong call when you’re making your first moves trading crypto. Having a tool that can make more informed decisions can be a big help. So, whether you’re a beginner or a pro, a trading bot could be profitable for you.
There’s a range of different automated trading platforms out there, each offering different kinds of trading bots. These platforms also offer template trading strategies that you can use to build the perfect plan for you. But what exactly separates one kind of trading bot from another?
The Different Kinds of Trading Bots
There are two popular types of trading bots: arbitrage bots and grid trading bots.
Arbitrage bots, as the name suggests, use arbitrage trading. This involves capitalizing on changes in market price between the same asset on two different exchanges. This is a good way to make smaller, but more consistent profits.
On the other hand, grid trading bots focus on buying low and selling high by using market volatility to their advantage. This kind of bot lets you place strategic buy and sell orders within a set price range to turn a profit.
Once it’s executed a sell order, the bot will then place another buy order at a lower grid level. People using grid trading bots often limit their orders to four or five. This helps limit damage in case the position changes from lucrative to risky by the time a buy order triggers.
Before you get started with automated crypto trading, it’s important to understand which bot does what so that you know what to expect. These bots offer a stress-free way to make a profit, but the way they trade depends on the way on the criteria they use and the rules that you set.
Trading Bots Can Quickly Turn a Profit on Your Behalf
Nothing is certain in the crypto market, and there’s no guarantee that using a trading bot will pay off. However, these bots are designed to trade in your interest and make the best purchasing decisions for you. So, if you need a little help while crypto trading or you’re looking to trade on a 24/7 basis, a trading bot might be the right choice for you.
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