As provided by specialists, approximately 75% of the current trading in global financial markets happens via algorithm-based technology. Similarly, crypto markets rely heavily on automated tools to optimize trading performance.
Recently, the crypto industry has seen an exponential increase in the usage of crypto bots within trading platforms, enabling crypto traders to create advanced strategies to keep earning more and more 24/7. For example, some traders use bots to trade options on websites like Binance, FTX and Bitlevex.
In this short guide, you’ll discover how crypto trading bots work and whether they are still relevant in 2022’s crypto market.
Trading Bots in 2022 – Basics Every Crypto Trader Should Know
A crypto trading bot is a software application that uses an application programming interface (API) to interact with a user’s account and automatically executes trades when market conditions meet pre-defined criteria.
Trading bots can interpret and combine traditional market signals such as volume, orders, price, and time with technical analysis signals with other factors such as the market sentiment in social networks.
Several platforms provide solutions to different needs within the crypto trading community. Some are designed for more experienced investors, allowing them to create automated and complex strategies that can be tested with historical crypto market data.
Others are better suited for less experienced crypto investors who want to increase the return on their crypto assets without going through the stress of making trading decisions on their own.
Typically, such platforms offer “copy trading” (traders copy positions opened and managed by a specific investor), “social trading” (traders observe the behavior of strategies made by other investors), and automated trading based on algorithmic strategies.
Are All Trading Bots Equal? – An In-Depth Look
Many bots for automated crypto trading are simple, available for use, and can be purchased via purchase or subscription. In some cases, there are trading bot solutions that might be even downloaded for free.
Accordingly, the value offered by this type of software is quite simple to understand – they give traders the ability to automate their trades and wait for the bot to generate profits.
However, it’s not always the case. While basic bots can be connected to a user’s brokerage account and can automatically execute buy/sell orders, users have limited control over the bot’s strategy, making them less useful for advanced traders.
These bots are already the immediate solution, with few customization options. Users need to rely on the original creator’s programming and strategy skills. The quality of these trading bots varies between good, fair, bad, or these services could be scams.
Identifying which crypto trading bots are capable of turning a profit and which are failed experiments — or worse: having been created to steal a user’s money — is a difficult task.
While a free crypto trading bot seems like a good idea, “free” does not mean “quality” and the “best bot” depends on the needs and experiences of users.
Another issue is that quick fix bots are limited and don’t consider all the factors that make markets move. They can be affected by unexpected factors such as a sudden crash (or “flash-crash”), a brokerage hack, or other major events.
As a consequence, in 2022, the trend will continue to diverge towards platforms that give investors detailed control of their trading strategy with automated and rebalanced strategies to generate profits.
Hence, winning platforms will make sure to offer a wide range of other features, including social integrations, testing, stock trading, community, support staff, portfolio tracking, and automatic portfolio rebalancing.
Are There Risks Associated with the Use of Crypto Trading Bots? – An Honest Opinion
Crypto trading bots and algorithmic trading strategies are simply tools, which means there is no guarantee of returns if you use them. Additionally, there are several risks associated with the unprepared usage of trading bots.
In this sense, it’s crucial to understand that trading bots are designed specifically for crypto traders – not investors or “hodlers.” Hence, some of these efficient automated trading tools may not be suitable for beginners or investors with a more conservative approach.
If you are an investor who just wants to buy or hold crypto assets, a complex strategy with bots may not be right for you. Similarly, investors with no trading experience can opt for “copy-trading” tools or use existing algorithmic strategies on a trading platform.
While trading bots platforms vary in their complexity, users with financial education, analytical skills, and trading knowledge will have an edge over those who don’t.
Are Trading Bots Still Relevant in 2022? – Final Thoughts
Undoubtedly, trading bots will still be relevant in 2022. Some of the advantages of using crypto trading bots include operating 24/7 with efficient, rules-driven trading, emotionless decisions, and passive income generation.
However, trading bots are not perfect. Crypto market volatility makes crypto trading one of the riskiest activities for inexperienced individuals. At the end of the day, the best approach for beginners is to “expect the unexpected.”