The cryptocurrency markets, owing to its foundations in the internet and computers as well as due to its global interconnected nature is available for trading at any time of the day, regardless of location. This can be both a boon and a bane, as while the connectivity aspect offers a lot of advantages, the same can become extremely stressful for traders, who need to track the market every second to track their gains and losses, with emotions of happiness and sadness rushing through them according to the movement of the market.

In order to arrest this stress and urge of looking at the market all the time, special bots have been developed which allow traders and enthusiasts of digital currencies to keep track and control their trading activities at all times as the bot continues to work endlessly and unlike the trader, needs no rest. A bot also allows for faster trades and transactions as well as a greater degree of efficiency as it is automated unlike the trader himself or herself who would need to initiate things manually.

The popularity and the exposure which cryptocurrencies received has led to a wide variety of cryptocurrency trading bots being developed which are either open-sourced and are available for free or are licensed and available to be used for a fixed price. Due to the large numbers of bots available in the market now, it has become hard to choose which one would work the best and which one would not. This article will try to explain about bots in detail as well as bring forth the best bots available in the market today.

What are Trading Bots?

In short, trading bots are essentially a special kind of program which has links to financial exchanges which is usually done via the use of API’s in order to derive information and automates tasks like buying and selling on your behalf on the basis of the current market situation. They do these tasks on the basis of pre-programmed rules which is performed when certain conditions according to the rules are met. These pre-programmed rules can be changed or modified according to user’s preferences.

Trading bots have been available in traditional financial markets, but has not been used in a large scale due to significant costs, with costs often ranging above $10,000. But the transparent nature of blockchain allows direct market access to their customers and allows them to check the exchange’s electronic order book, which in financial markets, was only available to big brokers and investors in traditional markets.

The goal of Bitcoin and other trading bots is to ensure efficiency in trading and transacting without needing to keep an eye on markets at all times.

Types of Trading Bot strategies

While not as mature as traditional markets, cryptocurrency markets are based on digital infrastructure, which means that they do not take time to catch up to newest technologies and methods related to trading. This has also allowed crypto markets to offer bots which allows investors to gain access to a wide variety of tips and strategies, some of which are described below.

Arbitrage

One of the primary strategies to trade in cryptocurrency markets, arbitrage allowed early bird traders to make profits. Arbitrage basically means to buy assets in one market, and then selling those assets for a higher price at a different market, which allowed traders to earn good profits. Due to the decentralized nature of crypto exchanges, there was significant price difference on different exchanges, which means people were buying from an exchange with a lower cost and then selling it to an exchange where the cost was higher.

Although the price difference between exchanges are not too large anymore, trading bots do allow traders to make the best of these differences, if they do arise. Arbitrage is also a good strategy for investing in futures, by capitalizing on its price difference in various exchanges.

Market Making

The Market Making strategy entails buying and selling continuously on a variety of digital currencies and contracts and make gains between the buy and the sell price. The strategy involves making buy and sell order limits near the current market price. The bot would help in this case as it would automatically place orders as the market price fluctuates in order to profit.

The biggest con of this strategy is that it is intensely competitive, which results it in often being a loss making proposition especially in environments with low liquidity.

Do trading bots work?

A trading bot functions according to the flow of the market by gathering data it needs in order to act upon a trade and to perform the analysis of the trading platform. For digital currencies, the market is a bit more complex, with a lot of market movement happening due to outside influences, which cannot be imbibed in the bot. Also, the fact that prices between different exchanges have stabilized somewhat means inter-arbitrage opportunities have decreased.

Many trading bots make use of the Exponential Moving Average, or EMA in order to perform their analysis on the market. They track prices over a set time period, and are then programmed to perform certain functions when there are changes in pricing. One of the cons of EMA is that they are based on data derived from the past, which may cause issues due to the volatility of Bitcoin and other cryptocurrencies.

On the other hand though, trading bots offer a wide variety of advantages, including maintaining a constant link with the market, as well as removing the emotional factor from the market. But bots can also mean disaster if the wrong trading strategy is used, as it would just automate those bad decisions and lead to magnification of losses.

Top Trading Bots

Some of the popular trading bots are given below.

Picture: Github

Zenbot is an open source trading bot designed in such a way that the source code is editable by the end user according to his or her preferences. The main features offered by Zenbot include the ability to conduct high frequency trading as well as the support for multiple assets. Zenbot claims to have a return of investment rate of around 1.531 percent in the first three months. The bot is free, and has support in GDAX, Binance, Kraken and Bitfinex.

The cons of Zenbot include the fact that it is not designed for usability, as it involves tinkering with code. The bot is not updated as frequently so one may miss important updates and changes.

Picture: Official Website

Another good bot in our list is Cryptohopper. The advantages offered by Cryptohopper include plug and play facility, as well as the ability to tweak and customize strategies. It also offers a unique feature which is backtesting. Cryptohooper also offers a great design and has professional external signals to guide traders.

Picture: Official Website

The bot also has community support. The bot is supported on Poloniex, Kraken, GDAX and Bittrex. The disadvantage of this bot is the fact that some strategies offered by the bot are paid, with prices ranging from $19.99 all the way upto $99.99 per month.

Picture: Official Website

Cryptotrader is an bot which has support on all major exchanges and requires no software installation. It also allows for backtesting and they have a strategies marketplace for tips and tricks on various strategies. Some of the other features of Cryptotrader include automated trading bots and instant notifications via email and SMS. The cons of Cryptotrader are that its pricing is based on the current pricing of Bitcoin and the large number of plans may cause confusion in the mind of a trader.

Animation: Official Website

Gunbot is another trusted name in the arena of digital currencies and it has a one-time payment solution which allows access to strategies and has support for Windows, Mac as well as Linux. Other features of Gunbot include support for all major exchanges as well as a lifetime license. It also has support for multiple strategies and is easy to use. Gunbot’s flaws include the fact that trading strategies can be expensive as well as that a server is recommended for the bot to run.

Video: Official Website

The most popular trading bot available, Haasbot has all the powerful features. It also has arbitrage bots and has support for backtesting. Haasbot has autotuning as well as safeties features and has great support. The cons of Haasbot include the high costs as well as the fact that it is not recommended for use by beginners. It is also recommended to run it on a server.

Conclusion

Trading bots can be an important tool for traders to ensure that they are interacting with the market at all times. They can help the trader to breathe easy and allow for automation for greater efficiency. While they require extensive knowledge, it is all worth well at the end.