Cryptocurrencies took financial markets by storm recently but ever since they were launched, people have been curious and keen to trade different crypto coins such as Bitcoin and other altcoins. A major limitation with most financial instruments is that they cannot be traded round the clock, 365 days a year, nor is it possible for traders to keep an eye on the market all the time. Check out more at Multibank.io.
Crypto trading can be very addictive because of its extremely volatile nature. Bitcoin prices could drop by almost 25% in just 24 hours and while this would be rather irrelevant for the players who’re taking long positions, these fluctuations offer numerous opportunities to traders investing for short-term gains.
If you do not want to miss out on these opportunities and yet, committing long hours is not something you can do, trading bots can turn out to be very handy for you. These bots have been in use for various commodities and are deployed by several companies for automated trades on global stock exchanges.
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Essentially, trading bots are softwares that communicate with financial exchanges through APIs. These are able to monitor movements on the exchange when you’re away and can be programmed to react as per the customized requirement.
How does a bot work?
You simply enter instructions for your trading bot. Say for instance you program it to purchase a commodity when its price is $1 or less and sell it for a profit when it’s $2. A cryptocurrency trading bot will also work similarly for your crypto assets like Bitcoin, Dogecoin, etc.
Strategies bots follow
Crypto trading bots are tools for algorithmic trading. They operate on a series of highly complicated mathematical formulas to carry out trades.
Trend Following
Trading can’t get any easier with this trading strategy where the bot simply responds to direct changes in the market. There’s no need to indulge in tricky algorithms that take into consideration technical analysis, predictive analysis, etc.
Arbitrage
Crypto bots for arbitrage trades are programmed to execute buy and sell orders to make the most of the price differences between the various cryptocurrency exchanges in the world.
No centralized exchange is in the picture as in the case of fiat currencies and thus, the prices keep changing on various exchanges.
Trading bots can be very helpful in making the most of these differentials as they automatically process a trade when the correct price differences are met.
Market Making
In this strategy, traders buy and sell high volumes of currency and profit from the spread. In order to be able to execute these high-volume trades, market-makers rely on trading bots.
Traders can make purchases or sales that involve a large volume of currency through market-making strategies, thus making a significant profit.
How to build your own trading bot?
DIY: from an open-source
You can build your own crypto trading bots through multiple ways. The most cost-effective and simplest way is to look for an open-source crypto bot that can be downloaded easily. You only need very basic technical knowledge to keep the costs low.
To be able to build and customize features, develop the bot further, and to deal with bugs and other software-related issues, you will have to hire a professional software programmer. However, as most bots are built already and hence adding unique features or tweaking trading algorithms can be difficult.
Start from scratch
If successful, developing crypto trading softwares is very rewarding financially as well as personally. For this, a dedicated and passionate team that is also skilled at their job with relevant experience is key.
While creating basic trading bots can take some weeks, a complex trading bot that can seamlessly operate on numerous exchanges will be time-consuming. This would require working on algorithms and creating a system that cannot be easily tampered with.
Steps involved:
- Decide on the programming language you will use.
Choose a programming language or script that you are already used to. Some common ones used for developing crypto bots are Python, Javascript, Perl, and C. The perks of using popular programming languages are that it is not a tedious task to find a programmer to fix or write a code. If you happen to come across a tutorial that helps you navigate through Python bots, that may turn out to be very helpful.
- Getting hold of your APIs
The step before coding is getting your hands on the APIs that let your bot access all the exchanges you want and can use your crypto bot for trading. Most of the leading cryptocurrency exchanges let APIs access their data about currencies.
- Create accounts with all the exchanges you will use
Creating an account on a cryptocurrency exchange is a simple step but you should be aware of the varying procedures for the same. Different exchanges will have different steps that you will have to follow before setting up your trading account. You may find certain exchanges that demand a KYC to be in place and thus ask for your personal information for approval while a few others can facilitate anonymous trading. Do bear in mind that vetting can be time-consuming.
- Pick a bot trading model
How do you know which bot trading model works for you? Trend following, Arbitrage, or Market Making may sound lucrative but remember that these may also come with heavy development time.
- Architecture
How your trading bot is structured will play a huge role in the way it functions. Bots basically use algorithms to read and interpret data. Note that algorithm-based trading is big today and is now a billion-dollar industry. If you want to avoid losing money, opt for a reliable bit that is backed by a solid mathematical model.
- Live Deployment
After you get all the major and as well as any teething issues out of the way, you can now let the rabbit out of the hat. As your crypto trading bot enters the market, it unleashes a great potential for profits. But it is important to stay grounded in reality as there has hardly ever been a platform that was rolled out without any initial hiccups.
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