Today, we interact with many robotic actions on a website, our mobile phones, and home appliances, without giving it much thought. In the cryptocurrency world, robots, commonly known as bots, are gaining popularity among crypto traders, namely, bitcoin trading bot.
Advancement in machine learning has birthed better robots that are slowly but steadily infiltrating our daily habits. Long are the days when a robot meant a scary metallic structure. You’d be surprised that a robot could actually be your ally.
What is a bitcoin trading bot?
A crypto trading bot is a computer program that executes trades on a cryptocurrency exchange without human intervention.
Because of the volatility of cryptocurrency prices, crypto investors want to maximize their profits. Therefore, they use automatic trading platforms to place buy and sell orders on crypto exchanges even when they are asleep. The decision to execute a trade on cryptocurrency exchanges is based on several factors, including price fluctuations and the underlying set of instructions.
Do bitcoin trading bots really work?
It depends. The effectiveness of an automated platform depends mostly on the strength and health of the lines of code behind it. Here, the bot must faithfully interact with the crypto exchanges’ APIs (Application Programming Interfaces). Its user interface must be tried and tested.
The set strategy
A strategy is a set of rules that tell the crypto trading bot how to interact with technical indicators after technical analysis of the data.
For a bot to be profitable, it has to follow a solid trading plan. A flaw in the strategy means making losses all the way while a good strategy means profits.
The volatility of the market
The cryptocurrency market is full of many twists and turns. The bot may be working correctly, a sound strategy is in place, but the market can experience factors that were not captured in the strategy. No matter how good the bot is, there’s always a risk factor.
Another factor that decides whether or not it works is its ability to wrap itself around unforeseen virtual currency market forces seamlessly. While most bots employ technical analysis, Bitcoin and general crypto trading are not solely based on technical analysis.
For example, sometimes the technical analysis can indicate that the price is bound to tank but, a significant partnership happens, and the bitcoin price heads the other way.
If automated trading works, is it profitable?
Well, how much you make from a cryptocurrency trading bot depends on the spread of your crypto and the strategies used. For example, to make a profit when automatically trading Bitcoin requires that the Bitcoin be spread across multiple exchanges. The different exchanges are then connected to the trading b using an application programming interface (API). Sometimes, the profits realized do match the Bitcoin stacked on exchanges. For instance, 9 BTCs spread across multiple exchanges can attract a gain of 0.26 BTCs per 24 hours.
Advantages of Bitcoin (BTC) trading bots
A Bitcoin or cryptocurrency trading bot has many advantages compared to humans manually executing trade activities. Assuming your bot is flexible, follows a tested strategy, accurately responds to technical indicators, and it’s strong, expect it to:
Be precise and emotionless
By nature, human beings are controlled by emotions. These emotions can work for or against us. When trading bitcoin, placing a sell or a buy order can be ruined by emotions. Fortunately, with a bot, the trades are precise since they are based on tangible market analysis.
With a Bitcoin bot, there’s no second-guessing whether or when to apply the rules. As long as the trades present fit the rules, there’s no turning back. Over time, these rules can be reviewed and updated, increasing the chances of the bot making a profit.
Boost your health
With manual bitcoin trading, a trader is required to sit in front of a computer or stick their eyes on a mobile phone screen. This can lead to eye problems, backache, and a myriad of other health problems. However, with a Bitcoin bot, health problems are mitigated because no constant human intervention is required.
Scanning through the market, noting the conditions, and making a trade is not only tedious but also time-consuming. Crypto trading bots can autonomously do the work by following a strategy. Without fail.
Disadvantages of trading bots
A strategy cannot fit everything
Many crypto trading bots follow technical analysis and a few other parameters. However, they are unable to incorporate factors such as partnerships, breaking news, tweets, among other factors that can’t be predetermined.
It’s not a one-time affair
Automated crypto trading is not a one-time affair. It’s not a fire and forget type of relationship. After the initial set up, Bitcoin trading bots require continuous review and updating. They also require continued maintenance.
Experienced traders profit more
A crypto trading bot make profits/losses based on a trading strategy. Experienced traders have better chances of drawing a comprehensive and informed plan compared to new traders. Although some bots feature pre-configured trading strategies, knowing what’s happening behind the scenes can make a difference between a profit and a loss.
Are trading bots legal?
Where a profit can be made, the question of whether the means used are legal comes later. But not of Bitcoin (BTC) trading bots.
Yes, it is legal. Unfortunately, the legality of using cryptocurrency trading bots stems from the lack of rules prohibiting their use. However, the absence of regulations governing automatic trading in the cryptocurrency market is by no means a license to unethically roam the crypto market.
A trading bot is just but a car and you’re the driver. Whatever it does, the trader is responsible.
But, if BTC and crypto trading bots have such outstanding advantages and are legal, why aren’t more traders taking advantage?
Because some lack a strong risk profile, and they work best for traders who aren’t entirely new in the market.
Types of cryptocurrency trading bots
The type of bot a trader chooses depends on the kind of strategy they want to execute.
Arbitrage Crypto trading bots are ideal for use with strategies that target on making a profit based on a difference in prices between cryptocurrency exchanges. For example, if Bitcoin is trading at $9.2K on Binance and $9.5K on Coinbase, an arbitrage bot buys BTC on Binance and sells on Coinbase making a profit of approximately $300.
Bots in this category are meant to analyze the crypto market and identify a specific trend. This is followed by placing buy and sell orders. Trend-bound trading bots are programmed to “sniff” the direction a particular virtual currency is likely to take. The bot then decides how to trade based direction.
Essentially, market making is transferring liquidity from one market and adding it to another. To achieve this, market-making trading bots actively buy from one market and sell on the other. These bots use strategies that place buy-and-sell limit orders to take advantage of the spread. However, for this strategy to make profits, there has to be high liquidity, and the competition must be relatively low.
Other trading strategies that can be implemented through algorithmic trading include:
This algorithm rides on machine learning to predict where the market wave is heading next, enabling informed buy and sell times.
Natural language programming (NLP) helps the bots to consider factors such as news and community chats.
Here, the bots operate by using Bitcoin’s current price as the pivot. When the price leaves the pivot, whether up or down, it assumes the price will return to the pivot after people sell and buy at the bottom. For instance, If the pivot point is at $9K, when the price rises to $10K, a mean reversion will wait until investors assume a high is reached and start selling. This will drive the price back to $9K or even lower. If it gets to a low of $8K, investors will assume it’s the lowest and start buying, consequently driving the price back to the pivot.
Bitcoin trading strategies following this route take note of a prevailing or soon-to-start trend and either issue trade orders either at the start or end of a trend.
Bots using this strategy make use of Bitcoin resistance and support price levels. These levels can be projected by factoring the Bitcoin moving average, relative strength index, and volume.
A resistance level is a point where the price of the cryptocurrency finds hard to overcome on its way up. In contrast, a support level is a point where the price is likely to start rising after a downward trend.
Even though bots are more accurate than humans, there’s always a possibility of a loss in every trade.
One way to manage the losses is by short selling. Short selling takes advantage of declining prices. Here, the trader borrows BTC or any other crypto, sells it, and repurchases it when prices fall. Unfortunately, BTC‘s price can be highly volatile, making it nearly impossible to project a downward trend with utmost accuracy. The key to getting profits with this method is by accurately predicting a downward spiral of crypto prices.
To further lower your chances of making a loss, hedging can be done using CFDs (contract for difference) or BTC futures.
Hold and wait
Commonly referred to as hodling, this is one of the best strategies for new crypto traders. Here, instead of making a profit from the price differences in different exchanges, traders buy and hold Bitcoin and sell only when the price increases.
Even though it’s easy to implement, it has lower returns compared to other complex trading strategies.
What is the best trading bot for cryptocurrency?
This question has no definite answer. It boils down to what you want with the bot and your preferred strategy.
Below, let’s look at popular crypto trading bots in use today:
If you are looking for a Bitcoin bot that can allow you to project your trade results, then Gekko is one of the ideal choices. It’s downloadable on Github and comfortably runs on macOS, Linux, and Windows.
Gekko’s top features include having a web interface for keeping tabs with how the trading strategy is performing. Also, Gekko has notification capabilities for keeping you notified through leading messaging and social media platforms such as telegram.
Gekko supports APIs from top cryptocurrency platforms such as Bitfinex and Poloniex.
Unfortunately, Gekko is only designed to handle low-frequency trades and doesn’t support arbitrage-based trading strategies. However, the platform is ideal for those starting on BTC trading using bots.
Are you looking for a bot-based in the cloud? Then CryptoTrader got you covered. The platform doesn’t need to be installed on a trader’s computer. It allows users to draw their own strategies.
The trading platform’s strong areas include the ability to allow traders to sell or buy strategies, live trading, and a notification feature that delivers notifications via text and email messages.
Also, it supports APIs from Coinbase, Bitstamp, among other leading crypto exchange platforms.
Despite the advantages, the platform is not free.
Unlike CryptoTrader that has little available information on its developers, Shrimpy looks at transparency as the basis for the wider adoption of crypto trading bots. Crypto bot trading on this platform is transparent including necessary user updates
Shrimpy’s stronghold is in re-balancing users’ crypto holdings to get optimized profits, backtesting, and duplicating other trader’s portfolio allocations.
The bot is available in both free and paid versions, with the paid version retailing for $13 per month. Crypto exchange APIs supported by Shrimpy include, but not limited to, Kraken, KuCoin, Bittrex, and Binance. Unfortunately, it suffers from low profits compared to other bots available and has no mobile application.
The bot is one of the perfect choices for those looking for automated crypto trading platforms that are friendly on Android and iOS. It delivers analysis and indicators such as simple moving average (SMA), Relative Strength Index (RSI), Moving Average Convergence (MAC), among others.
Also, for customer support, ProfitTrailer has a comprehensive FAQ corner, live chats, video explanations, and support tickets.
The platform has different paid plans. The differentiating factors between the plans are the number of APIs supported, buy-and-sell strategies, among others.
On the downside, users have to keep restarting it to get continued performance.
This trading bot is compatible with leading computer operating systems such as Windows and MAC.
Gunbot allows users to edit the strategies to fit their taste and has a host of built-in strategies.
The platform has different subscription plans that are priced between 0.04 BTC and 0.3 BTC. The Starter Edition features three algorithms to choose from while the Ultimate Edition has backtesting and cryptosight functionalities.
For those experimenting with cryptobot trading, this platform has a version that lets inexperienced algorithmic traders try it out with low amounts.
Cryptocurrency exchange platforms supported include HitBTC, Binance, Huobi, Cobinhood, Poloniex, Bitfinex, KuCoin, among others.
This bot is compatible with more than 15 cryptocurrency exchange APIs. Unlike options like Gekko that can be installed on a trader’s computer, the bot is available as an extension on Google Chrome and doesn’t support inexperienced traders.
Its strongest pillar is the presence of free scripts that users can deploy.
#7 Exchange Valet
The bot is designed to be operated on Mac, Windows, and Linux desktops. The platform allows traders to implement features such as charts to have a visual display of their assets. Also, it has stop loss and makes profits features that prevent users from making consecutive losses by stopping trailing loss.
This bot is for traders who have their cryptocurrencies spread on Binance, Conibase Pro, HitBTC, Poloniex, KuCoin, Cex, Bittrex, among many other cryptocurrency exchanges.
Apart from allowing users to set their own parameters, the bot provides programmed strategies that users can use. It also follows the portfolio of other traders.
However, to use this automatic trader, a trader has to part with either $22 for the Starter plan, $37 for the Advanced plan, or $75 for the Pro plan per month.
Unlike Gekko, HaasBot is one of those platforms meant for experienced traders due to its complexity. Ten technical analysis indicators power actual trading. It’s capable of automating trading strategies and project market dynamics on Deribitm KuCoin, Bitfinex, Gemini, Binance, Kraken, among others.
Hodlbot enables users to make a killing from the price volatility. The bot takes control of the user’s portfolio and, if necessary, re-balances it to maximize returns.
It supports APIs from major exchanges such as Bitfinex, Bittrex, and Binance, and Yobit.
Interestingly, unlike other bots that charge a fixed subscription fee, Hodlbot determines the fee depending on the trader’s account. The fee can even be zero. For example, if the trader’s account has crypto assets worth less than $500, the fee is scrubbed. But if the value of the account exceeds $500, the trader pays 10 USD.
How do you make a Bitcoin (BTC) trading bot?
While the presence of a wide range of cryptocurrency trading bots means it’s easier to find a near-perfect match for your crypto bots trading activities, not everything is captured.
You may have a different Bitcoin trading strategy, it may be that you have a new way to interact with crypto exchange APIs, you don’t trust strangers with the keys to your digital asset, or it may just be that you want to implement a unique idea you have been holding back.
If that sounds like you, here’s how to develop a BTC trading bot.
First, the ingredients
Before heating the oven to bake a new crypto trading bot, you’ll need first to:
Scout for a programing language
But Python can’t handle everything. When looking for a mobile-responsive bot, JS is the answer. Also, JS can be suitable for front-end programming, while Python is ideal for server-side programming.
Other programming languages include Java, C#, C/C++, PHP, Visual tools, Swift, Ruby, Kotlin, Objective C, and Lua.
Note that the programming language you employ in developing a BTC trading bot will define the features that can be hard-coded into the bot.
Hunt for the APIs
Application Programming Interfaces (APIs) are the link between the exchanges’ order book and the bot. Make sure you analyze the cryptocurrency trading platforms that you want to connect with your bot. This is followed by collecting APIs.
Bot’s work on the principle of representing you on an exchange. Therefore, you need to have an account with all the exchanges you wish to interface with your bot.
Whip up a strategy
Before getting your hands dirty coding, decide what type of bot you want to create. Do you want an arbitrage bot, develop a strategy around that. Do you want a market making bot, center your strategy around it.
A strategy will include things like the trading logic and the amount of BTC to trade at each instance.
What kind of data will your bot be interacting with? This will influence the bot’s architecture.
This is the most time-consuming phase. Don’t rush things over and take your time. If possible, and as a good programming practice, comment and document your code. This will help when you need to review your code or when you need to seek help from other developers.
Up to this point, your bot should be ready, but not for live trading. With backtesting, you have to subject it to historical market data and implement realistic conditions. Backtesting should consider the trading fees, latency, among other real-world factors.
Also, this stage should test your previously developed strategy.
It’s time to go live
After vigorous backtesting, it’s time to interact with live trading. Observe how the bot issues and interacts with API requests.
If everything is okay,
Automate your trading task so that you can start enjoying the fruits of your labor.
Crypto trading bots and scammers/hackers
The cryptocurrency market is infested with scammers and hackers. As cryptocurrency exchanges and wallet providers implement stricter security measures, trading bots are the next target.
Not everyone is good at developing their bots from the ground up. As such, scammers find an opening; they create bots and offer them either for free or as a paid version.
Since there’s no way a nontechnical trader will be able to access the bot’s source code and interpret every line, free bots are mainly prone to scams and hacks.
Therefore, compromised bots will always surface on the crypto market to collect personal information and steal your virtual wealth.
Remember the Binance hack where $40 million was stolen? Well, details show that it is a hacked trading bot that caused all the havoc.
In February 2020, details emerged that North Korean hackers are now gravitating towards trading bots to get a piece of traders’ digital wealth.
Although the crypto trading bot used by the hackers was fake, it was realistic, meaning a very thin line differentiated it with genuine bots.
Some hackers may not be interested in your initial crypto holdings; they only need the profits. To do this, they hack into trading platform’s root code, change the trading algorithms and divert the earnings.
Crypto trading bots coming as browser extensions are incredibly easy to compromise. Despite their convenient trading promise, they can give access to the trader’s entire computer. As such, it can monitor the exchanges a trader visits and copies passwords and login keys to these platforms.
All is not lost
Whether you’re using a free, paid, or a personal bot, there’s no need to share your API keys, never allow the bot to conduct automatic withdrawals for you, and most importantly, don’t blindly trust a bot because it looks cool or promises vast returns. Do extensive research.
Things to consider before choosing a trading bot
The market is flooded with many bots promising a quick earning when using automated trading. Some even promise you the best life after a few months of using them.
Away from the flashy promises pay attention to:
Unless it’s a new bot, community chats and reviews should be your first place for any suspicious smelling reviews. Even though the reviews may look genuine, read between the lines for any signs of bot-generated comments.
Is the bot really free? While the best-automated trading platform will declare its fees from the onset, others may ride on the “free” tag but have some hidden fees. This would include the trading fees on exchanges.
An automated trading platform may decide to automatically choose which BTC trading pairs to focus on. Unfortunately, not every trading pair is likely to earn much-needed profits. As such, trading pairs with alarmingly low liquidity likely to have a higher a bigger gap between the preferred price and the actual price of an order. This price difference is called slippage and can go as high as 50 percent, even on one of the best exchange platforms like Binance.
Security is more important than profits. Bots require you to share your API keys. These keys can easily give away a trader’s BTC wealth. To reduce the risk of giving out your keys to a suspicious automatic trading platform, look out for platforms that insist on helping you trade on exchanges that don’t have a track-record of detecting and thwarting hacks and or suspicious activity on user accounts.
Security can also be enhanced by restricting the amount of control bots has on your wallet. This includes disabling the power to withdraw. Also, for bots that run at specific times of the day or manually activated to trade, a trader can choose to switch off the ability to trade once the trading session is over.
The team behind a trading bot determines the credibility of the bot. Things to consider include their experience level, professional qualifications, source of funding, among others. Since these details can be faked online, a need to do a little digging on Google to unearth their real identities.
To buy, subscribe, build, or use a free crypto trading bot?
Our above discussion may tear you between which option of a crypto trading bot is the best for you.
The choice will boil down to personal preferences, security, trading frequency, preferred exchanges, ease of use, and level of trading.
For example, for new traders looking to perform a few trades per week and with tried and tested strategies, Gekko will be among their best first choices. Gekko can also be used by traders with a low-risk profile. For those looking to access cloud-based bots, CryptoTrader can do the magic. For experienced traders seeking advanced trading tools, GunBot has loads of features.
Unfortunately, bots are not meant for use by every trader. For some, using automated trading can be a nightmare. Also, for hodlers, bots may not do much to their profit margin.
Do you have an understanding of how bots work? Do you know how to develop profitable trading strategies? Are you a programmer? If the answer to any of these questions is no, then bots may not be for you.
With bots available for both retail and institutional trading. Retail crypto trading bots are one of the best because:
They can be deployed in markets not worth institution investors’ time. Funds circulating in the retail market have a lower chance of moving the market. Thus, there’s no huge capital pumping that can render otherwise profitable strategies desolate.
Retail investors do not need a go-ahead from various partners. This allows retail investors to have timely interaction with a trade.
Strategies are among the crucial factors of a profitable crypto trading bot. Think of crypto trading strategies as the engine powering your automatic trader. As machine learning algorithms continue to evolve, algorithmic trading will continue to gain momentum.