You are a crypto trader. Just like all humans, you take automatization for granted and believe that the machines will do their job relentlessly and without faltering. You are right to some extent. Crypto trading bots will indeed (if not in case of scams) do everything they are supposed to. But this does not mean profit. How come?
Well, bots reflect both your good and bad trading habits. If a bot loses you money, it will be your own fault almost every time. In any case, bots are taking over the market, so you better be prepared. This article will explain what crypto bot trading is, and provide you insights into the bots’ role in today’s market and their share in the trading pool.
What is crypto bot trading?
Crypto bot trading is using a piece of software to automate your trading process. What does this imply? Try to picture trading bots as your personal assistants, that will always follow your instructions. They can be a great time and resource saver because you just tag them in when you don’t want to sit in front of trade charts anymore. They are like a cyborg version of you that does not get tired, angry, and runs forever. Cool, right?
However, as attractive as they are, trading bots don’t work with a magic formula to bring you profit. Your input parameters are the essence of a bot’s consequential performance in the market. This can’t be stressed enough: you need a good strategy first, then a good bot will come later in the process.
What can bots do?
Different bot types exist on the market. Here is a quick list to get an idea of their all-around skills. The bots can:
- Buy multiple currencies on multiple platforms.
- Analyze market data to predict prices.
- Exploit small margins in the market to pick up the profit for you.
Always remember: make a trading plan first, then get informed about the type of bot you need for your strategy.
Share of bots today
As of June 2022, more than 75% of the total trading transactions were performed by an automated crypto trading bot or similar software that functions with parameters and algorithms. We can’t say this is surprising, since we live in an age when quantity is everything and people always want more. Our age is also filled with instant gratification seekers – they want to profit fast and with no sweat! This is why bots are going like hot cakes.
Just watch out! There are a lot of scammers out there, each using a different strategy to deceive traders. For example, Bitcoin Bank is a foul crypto bot that will steal your sensitive data in addition to your money. It is blacklisted on a lot of platforms for several reasons, being non-transparent and having the same name as other bots being two of them.
How do bots affect the market?
The effects of bots cannot be denied. We’ll divide those effects into positive and negative ones.
Starting with the most obvious one, bots benefit liquidity. If you need an explanation, let’s just say that thousands of bots are moving small and large sums on hundreds of different platforms, and moving money implies liquidity. Furthermore, the market gets more friendly towards beginners and non-rich people, because more people get a chance to take a shot. There are really cheap or even free bots that can get anyone started, regardless of their economic status.
We previously mentioned liquidity and there is another effect of it. A healthy market will start bringing stronger players – new investors who play a part in making the market even larger. There is nothing detrimental to this, and all parties involved should benefit. This is in theory, of course, because it does not mean sure profit for an individual.
Healthy liquidity is good. However, there are cases of organized groups of bots artificially spamming an exchange to make it look healthy and active. This is called wash trading and it happens rather often, unfortunately. Furthermore, scammers can imitate a good run of a certain coin by playing a “pump and dump” scam. They get people excited, pump up the price with a coordinated bot action, exploit that to make some money and then the coin eventually dies.
Finally, large businesses sometimes work together with exchanges, in the sense that they rent their servers. This brings unfair leverage for their clients since they have better insight into prices than regular traders do.
Neil Wharton is a crypto expert. He has worked in the cryptocurrency space since 2014, and has been involved in over $1 billion worth of transactions. Neil is also the CEO of CoinMetro, a cryptocurrency exchange that allows users to buy and sell cryptocurrencies.
When he's not working on his businesses, Neil enjoys spending time with his wife and two young children. He loves playing sports, and is an avid Manchester United fan.