Use Of Trading Bots On Crypto Market
The cryptocurrency market is very young compared to the financial one. Accordingly, it has its own features, especially when it comes to trading strategies. The markets may even seem similar to beginners — both have trading instruments and exchanges, you can buy and sell assets, take profit and withdraw funds. But an experienced trader can find much more opportunities to make money on the cryptocurrency market than, for example, on stock or futures markets. And these ways to buy and sell coins are not always honest.
One of possible loopholes is the use of bots for automated and semi-automated trading. This is quite a common thing, the question is in trade strategies. Traders are not allowed using bots to manipulate prices on stock and fiat currency exchanges. Meanwhile, the cryptocurrency market is not so strictly regulated yet. It opens up opportunities for traders who want to make money on a price manipulation.
Types of cryptocurrency trading bots
- Signal bots collect data about prices and analyze forecasts on changes in the value of trading instruments. After the analysis, a bot informs a trader about the optimal time to enter the market, or generates a report based on analyzed data.
- Trading, or order bots are used to make money on the price difference. The tasks of the bot include market analysis, buying cryptocurrencies at a lower price and selling them at a higher price. The bot makes automatic orders when the price reaches a certain level (determined by a trader).
- Arbitrage bots are tools used to make money with the help of a cryptocurrency arbitrage strategy. Bots analyze prices on several cryptocurrency exchanges.
- Script bots are implemented as custom programs. They have wide functionality, so that traders can adjust their preferences themselves. Such bots require great trading knowledge.
As we have mentioned before, the use of bots is not a new idea for traders with an experience in the financial market. However, there are fraudulent earnings schemes with automatic cryptocurrency trading bots. They almost exclude a trader's influence on the process.
Interestingly, traders themselves often become victims of scammers. Usually, these are beginners who use bots acquired from untrusted sources.
How to choose a crypto bot?
- Choose paid services from well-known developers that have reviews from other users on specialized resources.
- If it is possible, check the source code of a bot to make sure that it doesn't use a fraudulent scheme.
- The safest way is to write a bot yourself, but this option is not available to everyone. Try to select an open source program from a trusted developer.
A special attention should be paid to the choice of signal bots. Scam programs are set up in such a way that a trader receives wrong signals about the best time to enter the market and hence loses money.
However, there are other ways of using cryptocurrency trading bots. Fraudulent schemes aimed at getting profits with the help of bots pose a much greater danger to the market. Price manipulations bring scammers tens of thousands of dollars. We'll talk about the most popular and tricky schemes in our next article.