What are trading bots?
Trading bots are computer programs that communicate with financial exchanges through the use of application programming interfaces (APIs).
They are always on the lookout for new information, and they will respond in accordance with any predetermined criteria.
How do trading bots work?
Using bots is easy and really straightforward. Typically, cryptocurrency investors search for the best trading bots and then download the source code from their preferred developer. Also, a large number of bots charge fees for use, some of which can be extremely steep. The hardware and software requirements for each bot vary. An investor must know how to operate a bot effectively if they want to get the most out of it.
However, even with bots, most investing decisions remain up to the individual investor, including the timing of purchases and sales. If you don’t have the time or inclination to put in the work, then a crypto bot is not the answer for you. Cryptocurrency trading bots interface with crypto exchanges and place orders depending on predetermined parameters. Outstanding speed and efficiency, as well as fewer mistakes and emotion-free trading, are only some of the bots’ many advantages.
API keys are required for trading bots to access your account on an exchange. Because you have complete control, you can grant or revoke access at any time.
Risk allocation: Risk allocation is when a bot distributes risk in accordance with your set of pre-programmed criteria for doing so. Some examples include how capital is allocated in a trade. This means that risk allocation defines the percentage of your assets that the bot is free to trade at any point in time.
Execution: This is where the pre-programmed trading system’s signals come into play, and cryptocurrencies are purchased and sold depending on those signals. Trading will begin after the bot sends a request to the exchange using an API key, which establishes a connection between the two.
How to build your own crypto trading bot
- Strategy creation: Create a strategy using Python or CLEO.one’s guided strategy generation. Alternatively, you can get any of the several free strategies available online.
- Download market data: Download historical price data for the crypto asset of your choosing in a matter of seconds.
- Backtest your strategy: It is possible to “backtest” your trading plan by analyzing past data. You must perform extensive backtesting before moving on to the actual live market to determine whether or not your technique has a probability of becoming profitable. However, due to the fact that real-time market conditions are more complex than the data downloaded, there is no guarantee that the data will behave as expected.
- Optimize: Search for the optimal set of parameters for your trading strategy.
- Choose your trading pairs: For example, if a coin pair has more than a specified volume of trading, you can choose to trade that coin pair.
- Dry run: practice with a virtual wallet to see how it performs in the real world.
- Execute live-run: Using the API of a cryptocurrency exchange, you may put a plan to the test in real-time with a live account. This is the final step after you are confident and ready to commit your invested capital.
The features of a cryptocurrency trading bot
Trading bots for cryptocurrency should include the following features:
- Backtesting: Building a crypto trading bot and testing new strategies by recreating their results using historical market data is impossible without backtesting, which is why it is a necessary component. Market fees, latency, and other transaction-related factors are key components in a backtest.
- Scheduler: When developing a crypto trading bot, it is essential to incorporate a scheduler. The software can run on its own and just during predetermined periods of time. After a predetermined amount of time, the bot can either start running the device or put it into sleep mode or shut it down completely.
- Security: Every online trader, no matter what market they are in, is concerned about account and transaction security, which is why security is so highly sought. 2FA and other security measures are important since trading bots have access to your cryptocurrency wallets.
- Notifications: Email, popular messaging applications, or SMS are all options for traders who want to be notified about the execution of new trades. In this way, they can be notified when the bot completes a successful transaction or when the price of the currency under observation crosses a threshold determined by the user.
- Transaction data logging, storage, and retrieval: This feature records every trade the trading bot makes. As a result, users may look up their past transactions and know the date on which they occurred.
There are numerous trading bots on the market, some of which are free and others that are paid. Pionex, Cryptohopper, Coinrule, TradeSanta, Bitsgap, and Gunbot are some of the most popular bots. They come with a variety of features, such as Grid Bot, Arbitrage Bot, and Dollar Cost Averaging. Also, some of them allow users to create their own trading strategies using the platforms.
Custom trading bots are a secure and efficient way to make crypto trading a regular part of your income. With these, for example, you can choose your own trading strategy and customize it to suit your personal needs. There are many advantages to using a trading bot to automate the process of trading and taking advantage of price variations between exchanges. Nonetheless, you need a strong trading strategy and good knowledge of the market and its fast-changing dynamics.