What is Crypto Trading Bot – Its Types and How to Create your Own?
A crypto trading bot is a computer program that automatically buys and sells assets to take advantage of price discrepancies. A crypto bot automates trades according to a set of predetermined rules. These bots can either be purchased from bot development companies, or you could develop them using open-source software.
Identifying the right opportunity to buy or sell in such a highly volatile environment can be challenging. But what if we tell you that you can automate this? Life would become much easier, right? This is where a crypto trading bot could be useful.
The main functions of a crypto bot are monitoring the market, analysing data, and executing trades. Let us now see how these bots work and perform these tasks.
How Does a Crypto Trading Bot Work?
Bots are automated programs that take responsibility for performing repetitive tasks. They are programmed with certain algorithms to execute and complete orders based on established parameters. This goes for the crypto trading bot as well.
Let us see how trading bots work with cryptocurrency exchanges.
The bots use an API or an Application Programming Interface when interacting with an exchange. The API allows it to connect to the exchange and place orders. An API key must be generated; the bot then uses that for authentication. Additionally, the API provides read and write access to the order book, account details, and other crypto exchange data.
Also Read: Cosmos (ATOM) Crypto: The Internet Of Blockchains Explained
Types of Crypto Trading Bots
The different types of crypto trading bots include:
1. Arbitrage Bot
These bots take advantage of the price differences between different exchanges. For instance, if Bitcoin is trading at a lower price on one exchange and higher on another, the arbitrage bot will buy Bitcoin from the cheaper exchange and sell it on the more expensive one to make a profit.
2. Market-Making Bot
These bots simultaneously place a buy and sell order on exchanges to profit from the bid-ask spread.
3. Trend-Following Bot
These bots follow trends in the market to take advantage of them. For instance, if the price of Bitcoin increases, the trend-following bot will place a buy order. And if the price of Bitcoin decreases, it will place a sell order.
4. Algorithmic Crypto Trading Bot
These bots use algorithms to identify opportunities in the market and make trades accordingly. Such bots are programmed to execute orders only when a specified signal is received. This can help you move ahead of the fluctuations in the crypto exchange.
5. Scalping
Scalping is a strategy focused on short-term trading. These bots place a large number of orders in quick succession to take advantage of small fluctuations in the market.
6. Coin Lending
These bots lend your crypto coins to other traders at a higher interest rate to earn a profit.
Crypto trading bot has recently become very popular as it enables you to trade more efficiently and systematically. If you are not sure which crypto trading bot to use, here’s a list of 10 to choose from. Take a look!
Benefits of Using a Crypto Trading Bot
- A Crypto trading bot helps you trade more efficiently and systematically.
- A Crypto trading bot takes the emotion out of trading as all the trades are executed based on predetermined rules set by you.
- It can multiple markets and exchanges at the same time for price discrepancies. This saves you a lot of time and energy you would otherwise spend manually monitoring the markets.
- Crypto bots can analyse data more efficiently to identify patterns that could indicate future market conditions. This includes analysis of market data, risk prediction, etc. This is again a very time-consuming task if done manually.
10 Best Crypto Trading Bots in 2023
The 10 best crypto trading bots in 2023 are:
- Haasbot: This bot is very popular among cryptocurrency traders as it offers a wide range of features and customizability.
- Cryptohopper: Cryptohopper is a cloud-based bot that allows you to facilitate AI-powered trading. This is a social trading platform where you can discuss strategies and start trading even if you’re not a cryptocurrency expert.
- 3commas: 3commas is a popular crypto trading bot that allows both manual and automated trading. 3Commas’ integrated trading terminal called ‘SmartTrade’ helps you manage multiple trades across several exchange accounts at once. It has tools like the GRID bots, DCA bots, and Options bots.
- Gekko: Gekko is an open-source bot that is free to use. Gekko aggregates live market data, simulates order execution, backtest live markets via historical data, and allows you to create your own trading strategies.
- Zenbot: Zenbot is another popular open-source bot that features a 100% automated technical analysis-based trading approach. Zenbot is lightweight and has the capacity to handle multiple assets while executing high frequency trading, both at the same time.
- Tradewave: Tradewave is a cloud-based bot that allows you to create your own trading algorithm without having knowledge of coding.
- Gunbot: Gunbot is a popular bot that offers a wide range of features and customization options.
- CoinRule: CoinRule is a cloud-based trading bot that is best suited for mobile bot trading and can be used free of cost. CoinRule allows traders to use 7,000+ trading strategies on its platform and allows using technical indicators.
- Bitwave: Bitwave is a popular crypto trading bot that uses AI technology, is easy to use and provides a secure wallet to enable crypto trading enthusiasts to make a profitable trade.
- Pionex: Pionex has 16 free, in-built trading bots, two of which include an arbitrage bot which helps you receive a payout every 8 hours, and the GRID bot which helps you buy low and sell high.
How do Crypto Trading Bots Work with Cryptocurrency Exchanges?
Most cryptocurrency exchanges give you access to the crypto trading bots to interact with the exchange using an API. You need to generate an API key for the best bot-exchange interaction.
Crypto trading bots first fetch the data from the exchange through an API. Then, they analyse this data to identify patterns and trends that could help make informed decisions about buying or selling a certain cryptocurrency. When an opportunity is identified, the bots make the trade.
Crypto trading can be done on both centralised and decentralised exchanges. Centralised exchanges are the ones that require you to deposit your crypto assets into their wallets before you can start trading. Decentralised exchanges, on the other hand, enable you to trade directly from your wallet.
Pros of Crypto Trading Bot
The pros of using crypto trading bots are:
- Increased Efficiency: Crypto trading bots can trade automatically, saving you time and effort. They can also trade 24/7, which can help you take advantage of market opportunities as soon as they arise. This lets you take a step back from constantly monitoring the market.
- Quick Response: Crypto trading bots can place orders faster than you can, which can help you take advantage of market fluctuations. The crypto trading bot easily grabs some opportunities that can slip by the time you manually execute the trade.
- Analysing Past Performance: Crypto trading bots can back-test your trading strategies to see how they would have performed in the past. This can help you refine and improve your strategies.
- No Emotions Involved: Crypto trading bots don’t have emotions, which can help you avoid making emotionally-driven decisions that negatively impact your trading.
Cons of Crypto Trading Bots
- Imperfection: Crypto trading bots are not perfect, and they can make mistakes. Monitoring your bot’s performance is essential to ensure it performs as expected.
- Expensive: Some crypto trading bots can be quite expensive, impacting your profitability.
- Loss of Control: When you use a crypto trading bot, you are giving up some control as the bot will execute trades on your behalf.
Also Read: What is Staking Crypto and How does It Work?
How to Create your Own Crypto Trading Bot?
You can create your own crypto trading bot by following these steps:
- Choose the Programming Language: The first step is to choose the programming language you want to use to develop your bot. Some popular choices are Python, JavaScript, and C++.
- Choose the Exchanges: Choose the exchanges that you want to trade on. Some popular exchanges are Binance, Coinbase, and Kraken.
- Choose the Features: Choose the features that you want your bot to have. Some popular features include back-testing, arbitrage, and market-making.
- Develop the Bot: Develop the bot using the programming language and exchange that you have chosen.
- Test the Bot: The final step is to test the bot to ensure that it works as expected. You can do this by using a simulator or by trading on a live exchange.
Final Word
Crypto trading bots are becoming increasingly popular as they can help you trade automatically and take advantage of market opportunities as they arise. However, it is important to understand the pros and cons of using them before you decide to use one. You should also consider creating your own bot if you have the time and resources or you can simply download one using the code of a developer.
FAQs
Ans: A crypto trading bot is a software program that automatically buys and sells cryptocurrencies on behalf of the user. For this, it uses algorithms to analyse the market and make trading decisions.
Ans: The benefits of using a crypto trading bot include increased efficiency, quick response to market fluctuations, analysis of past performance, and involve no emotions. You can also keep track of the market and exchanges 24*7, which is not possible without using a trading bot.
Ans: The drawbacks of using a crypto trading bot include a loss of control over trades. Moreover, they can be expensive and they are not perfect. This means they can make mistakes and you must monitor their activity.
Ans: You can create your own crypto trading bot by first choosing the programming language, then choosing the exchanges, and selecting the features. Next comes developing the bot and finally testing it.
Ans: The various types of crypto trading bots include arbitrage bot, marketing-making bot, trend-following bot, algorithmic crypto trading bot, scalping crypto trading bot, and coin lending crypto trading bot.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
