How Crypto Trading Bots Work

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We live in an era where convenience is a necessity in almost everything we do. Today, the genesis of automation has led to the innovation of self-driving cars and virtual assistants such as Siri, Amazon Echo, and Google Assistant. These innovations have one aspect in common; they are technology run by bots. 

If you are familiar with cryptocurrency trading, you have probably also heard about crypto trading bots and their power for automation. But what exactly are they? We take you through the nitty-gritty of crypto trading bots and how they work to improve your trading.

What are Crypto Trading Bots?

Bots are automated programs that carry out specific tasks. Crypto trading bots are software programs that traders utilize to run trades on exchanges automatically. With a crypto trading bot, traders need not enter each trade into the exchange. Instead, the bot accesses the trading data of an individual from the various exchange accounts and uses this data to place automatic trades on the trader’s behalf.

Crypto trading bots owe their power of automation to computers, which deliver speed and accuracy that the human mind cannot. These computers help traders to develop unique trading strategies from a set of algorithms programmed into the trading bots. The bots then use the strategies in guiding them on how to trade, tracking arbitrages across different exchanges in real-time as well as constructing custom indexing strategies.

Why Crypto Trading Bots Exist?

Virtual assistants were created to help users perform tasks with efficiency as well as to schedule routine tasks that would otherwise be time-consuming. Crypto trading bots were born from the same ideology. In the world of trading, traders have to monitor the crypto market for trading options, make analysis from the findings, trade on their various exchanges and adjust their portfolios among other tasks.

In a volatile environment such as the crypto market, such routine tasks prove to be complex, time-consuming and exhausting to perform regularly. Crypto trading bots are designed to automate most of what traders do daily with speed, accuracy, and efficiency.

With trading bots, users can automate a single trading strategy on a single trading pair. Traders with a vast portfolio spread over different exchanges also use trading bots to route trades between any of their assets intelligently. Additionally, traders use advanced bots to implement a complete portfolio management strategy, which helps them stay on track with their trading progress by adjusting their portfolio with the result of each trade performed.

Trading bots run round the clock, saving traders from having to be online to monitor arbitrages, place the trade, monitor its progress, and adjust the portfolio. Their level of accuracy also keeps traders from making great losses due to human error.

The Working Mechanism of Crypto Trading Bots

Crypto trading bots operate by accessing the trader’s data on their exchanges. To do so, traders give the bots access to their accounts through their public and private API keys. These keys allow the exchange site to grant the bot access to all relevant data implemented into the trading strategies.

API Keys

Application Program Interface (API) keys are a token through which services or applications outside the exchange are authorized to access features and data found inside the exchange. With the API keys, the trading bots can do the following:

  • Request the latest market data – this includes coin prices and arbitrages from which traders can find options to trade.
  • Place a trade on the user’s behalf – buying or selling when the preferred parameters are met.
  • Manage the user’s portfolio – collect information on the amount of funds in a trader’s account in real-time; based on the outcome of each trade placed.

API keys ensure the security of the user’s exchange. Traders have full control of their exchanges and can withdraw or delete the API keys on the exchanges at will to deny a trading bot access to their trading data.

API keys have different settings that are unique to them. However, at the core of all API keys are two settings; the ability to collect data on the balance in your exchange account and the ability to trade on the exchange account on your behalf. Each exchange has its varying levels of the amount of control it gives trading bots to access such data.

Trading Strategies

With access to your exchange, crypto trading bots are guided by trading strategies incorporated into their algorithm. The strategies include specific orders that instruct the crypto trading bot on when to buy or sell a coin and when to stop trading when the prices go beyond or above a specific price. 

Examples of Crypto Trading Bots

One of the market examples of reliable preprogrammed bots is Superorder. The terminal provides pro traders with six automatic crypto trading bots for rent with different capabilities: Milk Scalper, Ethos, Mr. Ripple, Happy Hammer, Cherry Pick Bot, and Susy the Baller. You can rent any bot and learn how they work. But the main advantage is in their simplicity – bots don’t require coding or modifying, just rent and relax.

Other examples include customizable bots from 3Commas, open-source tools from Gekko, and signal-based solutions from Cryptohopper. As well, skilled programmers can create their own bots. 

Overall, crypto trading bots are a secure way to automate your trading and enjoy automation, speed, and accuracy in your trading. Preprogrammed bots save a lot of time and help pro traders to focus on more creative stuff.