The cryptocurrency market is reputed for the boom it has enjoyed since its establishment. More digital assets are getting the attention of various industry giants by the day. The presence of exchanges and trading platforms has also made things a lot easier as people are able to make speculative decisions easily and with the push of a button.
However, while trading platforms are currently holding the charge, trading bots are getting recognized as one of the easiest ways to make money as a crypto investor.
Crypto Trading Bots: An Overview
One of the most significant properties of the crypto market is a high level of volatility. This means that speculative traders will actually need to keep tabs on current trends and movements to make profits. This way, they can make purchases when there’s a decrease and sell when values rise.
Volatility is definitely something that the crypto market has as an inherent characteristic. Bitcoin rose to an all-time high of almost $20,000 in December 2017 and lost about 80% of its value a year later.
Automation is one thing that makes a lot of financial activities easy and wile crypto trading platforms have brought a certain level of automation to the crypto sphere, a lot of people desire even more sophistication.
This is basically when the crypto trading bot comes in.
In its simplest and most comprehensible form, the crypto trading bot is an artificial intelligence system that makes crypto-related decisions based on certain programmed parameters. Basically, a crypto trading bot is a specialized programme that has a specific focus on cryptocurrencies and their generation.
So now that you have a basic understanding of what crypto trading bots are, the use of these bots for transactions is what is known as crypto bot trading.
Simple enough, isn’t it?
Crypto Trading Bots: Classifications
Now, there are some crypto trading markets that make it possible to use bots in connection to the market. These bots help make trades on behalf of the user, even if the user isn’t there. In this case, the bot is basically uploaded to a cloud service and it makes trades from there.
There are different types of trading bots. You have free software, single-purchase applications, and subscription-packed software. Although they basically function the same way, efficiency rates differ greatly.
In the same vein, there are bots which are developed to mine a specific currency. Bitcoin trading bots come to mind when these are usually discussed, as these bots have risen in popularity due to the fact that Bitcoin value is the highest of any cryptocurrency.
Major Efficiency Parameters: Sped and Control
Usually, efficiency in crypto trading bots depend on two things; improved speed and reduced control. Basically, a trading bot is more effective if it is faster. Also, higher efficiency can be gotten from a longer period and a more accurate prediction. However, as a user, you should know that your reliance on these bots carries a lot of risks. Inasmuch as the advanced technology in these bots makes them efficient for trading, the risks are still very much present.
Trading with Bots
One important thing that comes to mind on the subject of trading with bots is that these tools are only supposed to help prove your efficiency as a trader. You (the user) are the trader, but the bot is simply the instrument. To wit, knowledge of trading is required if you don’t want to put your assets at risk.
Basically, knowledge of trading will help you to adjust the programmed parameters in your bot as time goes by. With these adjustments, you can fix underlying errors and make changes based on the prevailing market conditions.
Just as it is with all asset transactions, the point is that you give your trader the control of your crypto assets. Then, the trader makes exchanges on your behalf to achieve a specific goal. Working with bots is basically the same thing; you trust it with your funds and give instructions for it to execute.
The trading bot is usually connected to the cloud, as well as other crypto markets. The user provides instructions (in the form of programmed parameters for user-developed bots or bot settings for general bots). From there, the bot makes transactions on behalf of the user based on these instructions.
Risks Associated with Crypto Trading Bots
As stated earlier, the absence of user control of these bots carries a degree of risk. The major risks that you can experience with these bots are faulty software, scams, and system crash.
Bots manipulate markets by increasing costs. Scams are usually more prevalent with subscription-based and general bots. Essentially terms of your purchase can be a bit suspicious, and a lot of buyers tend to just purchase the bots without looking at the fine print.
Another major scam comes in the fact that some general bots aren’t actually effective. These bots get programmed to only work for a specific period of time, or there ends up being a fault in the underlying code. The unsuspecting buyer purchases such a bot and ends up suffering a major loss after the bot proves ineffective on multiple trades.
Usually, scams can be avoided by ensuring that you conduct proper research and due diligence before making purchases of any bot.
The faulty software risk is one that still exists, even though it is admittedly less frequent. It affects more of user-developed application and subscription-based bots.
Bots are built on specific codes and algorithms that help them to function. Faulty can occur in the development process, essentially rendering the bot inefficient at certain points in time.
Just as it is with the faulty software risk, system crashes are much more common to subscription-based and user-developed bots.
There are various reasons why a bot might crash, although the major reasons are due to malware installations deep inside the code of the bot.
According to research, 90% of remote code execution attacks come from crypto mining. Also, a bot might be incompatible with your computer or have compatibility issues with your browser. In the event that a bot is deployed wrongly to the cloud, a crash might also occur.
In summary, the risks associated with these crypto trading bots ends with the trader losing his funds. While a lot of vigilance can easily save you from falling victim to a crypto trading bot scam, other safeguards can help. System crashes and faulty software can be solved with backtesting and consistent development.
Despite mitigants, that you’re making use of a sophisticated (and imperfect) form of technology means that they can be sometimes unavoidable.