27 July 2022 • 8 min read
As the saying goes, variety is the spice of life and the same is true in the world of crypto trading. Just as there are many different types of traders with many different investment goals, there are many different approaches to trading crypto.
It’s a point that has become especially clear during the recent downturn. What worked during the surging market back in November 2021 no longer works now that we’re all in the midst of a bear market. Despite the recent crypto crash, however, even a crypto winter can be a buyer’s market. But I digress.
Back to the subject at hand: crypto trading bots. By now, all of you reading this article should understand the importance of using automated trading bots when buying and selling crypto (we’ll reiterate some of the main reasons below). But did you know that there are many different types of crypto trading bots? Far from being a one-size-fits-all solution, there are bots designed for a specific purpose. Let’s take a look at some of the more popular ones below.
First things first: a brief refresher. What are crypto trading bots?
Quite simply, crypto trading bots are computer programs designed to automate trading on your behalf based on certain predefined conditions. These bots gather and interpret market data such as market prices, volatility levels, and potential risks and then execute trades, making the trading process much easier.
Given crypto’s notorious volatility and the fact that the crypto market is open 24/7/365, it is physically impossible for a trader to monitor coin prices at all times. If you’re still manually trading crypto (yes, we’re talking to you), then you should re-evaluate your trading strategy (and fast). It’s one of the reasons why Wall Street has been using automated trading systems for decades—they’re faster, more efficient, and more profitable.
However, that’s not to say that the crypto trading bots are an easy path to riches. They still require a human touch with experience, expertise, and a bit of trial and error. That’s the art of trading.
But crypto trading bots should be the starting point for any individual trader. Without them, it’s like trading with a blindfold. You might as well guess.
Rather than taking an ad hoc approach to trading crypto by doing it manually, it’s far more sensible (read: profitable) to undertake a strategic approach with the insights of the latest research in artificial intelligence and machine learning.
There’s no way of getting around it. A crypto trading bot is simply faster and more efficient than a human trader. Full stop. In the time it takes you to read this sentence (or for me to write it), a crypto trading bot could have executed hundreds, if not thousands, of trades.
When markets are surging, it can be easy to get swept up in the euphoria. And, conversely, when markets are in the doldrums, there is a tendency for fear to take over. Generally speaking, emotions are good. It’s what makes us, well, human. But emotions are often a liability when it comes to crypto trading. Research has shown that 80% of traders lose money due to poor trading psychology.
Crypto is like the New York City of financial markets. It’s the market that never sleeps. Unlike other financial markets, the crypto market operates around the clock. And crypto bots can do what we as individual traders cannot do: monitor the market day and night. No more missed trades or missed opportunities.
Now that we know what crypto bots are and the many advantages that they confer over manual trading, let’s look at a number of different crypto trading bots.
Arbitrage involves buying from one platform and selling on another to make a profit. The main aim of arbitrage is to take advantage of the price imbalance across multiple platforms when placing a trade.
While arbitrage can yield profits, often these profits are minimal and require large numbers of trades to turn small gains into larger ones. With arbitrage crypto trading bots, traders should be aware of the different types of arbitrage (e.g., triangular arbitrage, latency arbitrage, and spatial arbitrage) as well as how the type of crypto exchange can determine the extent to which you are profitable.
One way to profit from cryptocurrency trading is to lend coins to margin traders, with the understanding that they will pay back the loan with an additional percentage. Certain crypto exchange platforms offer users this option, although it can be very tedious to manually set the parameters for payments and new loan requests.
A coin lending bot allows you to automate the process, reducing (or even obviating) the time needed to set interest rates manually, thereby exploiting potential opportunities. In addition, lenders consider margin loans a low-risk return on investment (ROI) since they are on the exchange platform. In other words, a borrower cannot transfer funds to a different wallet, making coin lending safe for lenders. You can configure a coin lending bot to align with your lending strategy by defining the currency, the interest rates, and the due date for the loan.
Margin trading refers to borrowing funds from an exchange to execute a trade larger than the equity of the trader's account. It involves leveraging on third-party capital to execute a trade. In margin trading, traders can execute a buy if they believe that the price of a coin will go up and also take a sell when there's a drawdown.
Leverage bots can capitalize on these borrowed funds to execute trades beyond your capital. However, there is a catch: leverage can go both ways. Obviously, a good prediction will result in a massive profit, but it can result in a huge loss if not applied strategically.
First, we need to understand the term “market making.” This refers to buying and selling an asset to take advantage of the difference between the bid and ask prices, which is known as the spread. A market making bot is one that is used to provide liquidity and, as a result, establishes a certain level of trust within the crypto ecosystem.
Market making trading bots monitor the market all day to find markets with a bigger spread in order to make a profit for investors. For example, if an asset trades at $100 mid-price, a market making bot could buy at $99.90 and sell at $200.10 for 20,000 or more shares. Now, when the price moves down, the bot will make a profit of $4,000 ($0.2 x 20,000) for a purchase of 20,000 shares. An investor can build a good ROI as a result. You can customize your market-making bot for a particular asset and take advantage of the ask and bid prices.
Technical trading bots are the most frequently used bots on the market today. Employing predefined technical indicators, these trading bots predict future price movements of a coin using predefined indicators and signals, which are then used to make a profit. Most technical trading bots incorporate signal and social trading, allowing you to copy successful traders' trades, and reliable and trustworthy ones can be found on the best marketplaces.
Now that you know what they are, why they are used, and the many types available, how can you go about finding the best crypto trading bots? After all, choosing the right trading bot is almost as difficult as choosing the right cryptocurrencies in which to invest your money.
The age-old advice still applies: do your own research. This has become especially important since the number and sophistication of crypto malware and crypto-related scams are on the rise. What you shouldn’t do is put your trust and money into anonymous bots being offered by questionable trading platforms.
The best crypto trading bot platforms will typically be the ones that allow you to “try before you buy.” In other words, once you’ve identified a platform of interest, explore whether they have a free trial offer during which time you can “test drive” the platform’s crypto trading bots to see if they're a good fit for you.
At Trality, we empower traders with simple, easy-to-use solutions based on the latest advanced research in AI and machine learning. Whether you’re a complete beginner or a coding expert, we have automated tools to help you trade with increased speeds, efficiency, and profitability.
The Rule Builder is intended for crypto traders with little-to-no coding experience. Its clean, elegant design means that users can transform their trading ideas quickly and easily into a profitable strategy using professional-grade tools.
With its intuitive graphical user interface, the Rule Builder is a simple yet powerful rule-based bot creation editor, one that lets traders build and automate algorithmic trading bots by dragging and dropping technical indicators based on boolean logic. With over 100 technical indicators from which to choose as well as a variety of predefined strategies, traders can customize their bots with ease based on their own individual needs.
Once the desired setup has been achieved, traders can then analyze their strategy with Trality’s blazing-fast backtester, which employs a variety of commonly used statistics to gauge 1) performance (e.g., profit and loss; total return; average profit per winning trade), 2) risk/return (e.g. volatility; Sharpe ratio), and 3) runs (e.g. maximum drawdown; time under water).
And since Trality is a cloud-based platform, all of its tools, including the Rule Builder, are available 24/7, allowing users to create, backtest, and live trade at any time, day or night, from anywhere in the world.
The state-of-the-art Code Builder is the world’s first browser-based Python code bot editor. It is designed for experienced traders who want to develop sophisticated trading algorithms using the latest technology.
Python programmers will feel at home using the Code Editor’s full range of powerful tools and innovative features to create and backtest their algorithms. In-browser editing with intelligent auto-complete as well as in-browser debugging provide a seamless process for the development of trading ideas and their eventual realization as profitable trading bots.
With a full range of technical analysis indicators and a growing number of libraries, including NumPy, the Code Editor provides maximum flexibility for customizing bots based on a variety of market conditions and a variety of short- and long-term trading goals.
Blazing-fast, in-browser backtesting also means that testing and fine-tuning algorithms can be done quickly and easily. Benefit from clear versioning and backtest history, while also having access to financial data with easy-to-use API.
All strategies and algorithms created with Trality’s Rule Builder and Code Editor are completely end-to-end encrypted, and all bots created on Trality’s platform meet strict security and privacy standards. Traders’ funds remain safe on their chosen exchange, and Trality only uses withdrawal-disabled API keys.
Trust, reliability, functionality, flexibility—these are some of the most important hallmarks of profitable crypto trading bots. As we’ve seen, crypto trading bots confer a range of crucial benefits, from emotionless and disciplined trading to more advanced strategies such as margin trading. The question is not whether to use automated trading, but which automated trading strategy is right for you.
Whichever crypto trading bots you choose, always remember the golden rules of trading: do your own research and never risk more than you can afford to lose.