What's a Bot in Crypto Trading?

Bots in crypto trading are programꦕs that automaꦕtically execute trades much quicker than humans and can trade 24 hours a day, seven days a week. An inevitable development, crypto trading bots can be both good and bad for crypto traders.

Types of Bots in Crypto Trading

There are many varieties of cryptocurrency bots. One of the most popular types is the arbitrage bot. Arbitrage bots are tools that examine prices across exchanges and make trades to take advantage of discrepancies. Because the price of a cryptocurrency like Bitcoin tends to vary somewhat from exchange to exchange, ꦍbots that can move fast enough ꦡcan beat exchanges that are delayed in updating their prices.

Other types of bots use historical price d꧑ata 💧to test out trading strategies, theoretically offering traders a leg up. Still others are programmed to execute trades at particular signals, such as price or trading volume. Here is a (non-all-inclusive) list of bots being used as of July 2024:

• Trend trading
• Arbitrage
• Coin lending
• Market making
• MACD (moving average convergence divergence)
• Automated trading
• Dollar-cost averaging
• Semi-automated
• 澳洲幸运5官方开奖结果体彩网:Artificial Intelligence trading
• Grid bots
• Portfolio rebalancing

How Crypto Trading Bots Work

Bots are programs that run on computers, servers, platforms, or other devices. Crypto trading bots are programs that are given access to a trader's account and permission to buy and sell crypto assets on specific platforms.

These programs are usually designed to achieve specific trading goals. How they achieve these goals depends on their programming, the parameters set by the trader using them, and the 澳洲幸运5官方开奖结果体彩网:strategies they input into the program.

Where to Find Crypto Trading Bots

You can find crypto trading bot service providers online or on specific exchanges. For example, cryptocurrency exchange Binance provides trading bots to users in specific jurisdictions (but not the U.S.). If it's available in your area, you can choose from the following bots for futures or spot markets:

• Auto-invest
• Sideways
• Bullish
• Bearish
• Batches

Third-party platforms like 3Commas𝓀, Cryptohopper, Pionex, and HaasOnline provide crypto trading bot services. You can choose from preprogrammed trading strategies or, in some cases, design your own. Most of these platforms are subscription-based, with additional user fees—some of which can be quite steep.

I꧋n some cases, you might be able to find a bot that is most useful for you and download the code from💛 a developer. Each bot includes different requirements in terms of software and hardware.

Concerns About Bots in Crypto Trading

Traders cannot react quickly enough to changes in price to achieve the optimal trades that are theoretically available to them.🔜 Slowdowns in exchanges and transaction times further exacerbate this problem. They can also not dedicate as much time to the cryptocurrency markets as necessary to consistently achieve the best trades. Doing so would require round-the-clock monitoring of cryptocurrency exchanges all over the globe, something a bot excels at.

Certainly, 澳洲幸运5官方开奖结果体彩网:bots are a controversial compo♌nent of the market. They are programmed by humans and thus subject to errors, and thei♔r persistence and speed remove some of the fairness in the market. Additionally, crypto trading bots have yet to prove they are better overall at generating profits than human traders.

Bots can be incredibly helpful, although there remains an ongoing debate about whether they should be permitted in cryptocurrency trading. However, to maximize the impact of a bot, you must know how to utilize the tool. For instance, you'll need the proper accounts set up across 澳洲幸运5官方开奖结果体彩网:digital currency exchanges, many of whi⛦ch require personally identifiable information to comply with know-your-customer🍌 (KYC) laws.

You'll need to link your exchange accounts to these bots—which is very much a gamble if you're giving a third-party automated program your account information and the ability to trade for you. While you can find many stories of traders using bots with success, it's best to remember that crypto trading bots are created by people, which requires you to trust that they have your best interests in mind and won't steal your funds and cryptocurrency.

The reputable exchanges that offer trading bots may be more reliable, but again, you're trusting a program designed by people. It's possible there are errors in the programming that could lead to issues. If you choose a trading bot, it's a good idea to read through the legal agreements and documentation to learn if there are guarantees or methods to get your funds back if a bot goes haywire. For example, if the bot encounters an error and makes a purchase when it should have made a sale, you should be notified of the action and be made whole because you didn't make the mistake.

Cryptocurrency bots may only provide marginal returns (even when operating correctly). Successfully utilizing a bot requires a deep knowledge of the digital currency markets and an excellent supporting investment plan. For some traders, a bot can be a useful tool to aid their cryptocurrency trading. For others, though, by the time they've done the work to prepare themselves to adequately use a bot, they may no longer require its services.

The Bottom Line

Crypto trading bots automate cryptocurrency trading and can be programmed to trade 24 hours a day, seven days a week. There are several advantages to using these bots, but there are just as many drawbacks. If you're considering using a bot to trade crypto, make sure you know what it is capable of doing and fully understand the crypto market and trading strategies. You're also giving a program created by someone you don't know access to your money and trading accounts, so make sure to do your research before committing to using one.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our  for more info. As of the date this article was written, the author owns BTC, XRP, ETH, and ADA.