There are a lot of misconceptions regarding automated crypto trading. Some individuals assume it’s some kind of magic, whereas others believe it’s a scam.
Time waits for no one and financial markets are not any exception. especially in the chartless territory of cryptocurrency commerce, keeping up with the fast changes in prices is key to success. A plethora of cryptocurrencies, a number of viable trading methods and diverse tools accessible to new traders could all cause confusion.
Fortunately, technology has made it possible to automate several trading processes, together with market analysis, predicting trends and order execution. This frees up longer for strategic planning and establishing a solid foundation for long-term cryptocurrency trading success.
What is automated crypto trading?
Automated crypto trading, sometimes known as automated cryptocurrency trading, is the practice of using computer programs (crypto trading bots) to buy and sell digital currencies on one’s behalf. These software applications are supposed to react to promote changes to trade at the optimum moment. what is more, automatic crypto trading removes the part of uncertainty and feeling from manually shopping for and selling cryptocurrencies.
Although some newer crypto bots utilize sensible contracts and operate directly on the blockchain, most automated crypto trading platforms are still Apis. The term API refers to an application programming interface that enables your account to communicate with a cryptocurrency exchange therefore it will open and close positions on the user’s behalf per certain predetermined conditions.
Automated cryptocurrency trading has many advantages over manual trading, including the fact that bots will work endlessly without rest. they're also unbiased by emotion, so they can forever adhere to their game set up and follow any new market trend or event straight off once it happens.
Several kinds of crypto trading bots are available, every differing in terms of options, functionalities and worth. the most popular ones tend to be arbitrage or grid trading bots. Arbitrage bots profit of the value differences on different exchanges, whereas grid trading is focused on the “buy low, sell high” strategy.
Some automated crypto platforms have different characteristics, like the hodl operate on 3Commas. This doesn’t just trade; it also allows users to buy and hold crypto automatically by buying at low prices. it's up to the user to decide on the cryptocurrencies they need and a bot to assist them in doing exactly that.
In general, automated crypto trading goes through four steps: data analysis, signal generation, risk allocation and execution
Data analysis:In a technology-oriented world, data is an essential ingredient for fulfillment , and that’s why a crypto trading bot needs data analysis. Machine learning-enabled package will perform data mining tasks at a faster pace than a human. Signal generation: Once the data analysis is done, a bot performs the trader’s work by predicting market trends and identifying possible trades supported market data and technical analysis indicators.
Risk allocation: The risk allocation function is where the larva determines the way to distribute risk among different investments based on predetermined parameters set forth by the trader. These rules typically outline how and what share of capital will be invested when trading.
Execution: The process in which cryptocurrencies are purchased and sold in response to the signals generated by the pre-activated trading system is known as an execution. At this era, the signals can generate purchase or sell orders that are passed on to the exchange via its API.
Is crypto automation legal?
There is nothing illicit about utilizing a trading larva in any jurisdiction wherever cryptocurrency trading is permissible. within the traditional financial market, the utilization of bots is kind of common and well-regulated. Machines currently execute a large variety of stock trades, and the same is true for cryptocurrency trading. A bot is simply a way to trade that doesn’t need a person to execute the trades manually — it isn’t breaking any laws.
However, there are several limitations to this. Some crypto bots are outright frauds, whereas others utilize shady tactics that would be thought of unethical or illicit. Pump-and-dumps and guiding consumers to unregulated brokers who might take your cash while not delivering any service are samples of this. These bots operate potentially outside the bounds of legality.
Do automated trading bots work? the problem isn’t whether they work; it’s how well they operate. Their impact is additionally determined by a spread of things, as well as the platform and bot used, yet because the level of experience and skill the user has.
( Arnold Kirimi, Cointelegraph, 2022 )