Bots

November 21, 2023 - Around 2 mins mins to read

Understanding Bots

Bots, also referred to as trading bots, have been utilized in stock markets for many years. The development of complex high-frequency trading (HFT) software has taken their capabilities to new heights. These advanced bots can analyze multiple markets simultaneously and execute buy or sell orders in response to real-time changes.

Supporters of trading bots emphasize several advantages over human trading. Bots are much faster than humans and do not require rest. They are not influenced by emotions and make decisions based on statistical analysis to maximize benefits. Additionally, bots can handle vast amounts of data, processing and analyzing information beyond human capacity.

In the realm of cryptocurrency trading, bots serve various purposes. They can automate time-consuming tasks like regular portfolio rebalancing. Bots can also ensure precise execution of orders at the desired time, such as selling an asset when it reaches a specific threshold. Furthermore, bots simplify complex trades that may be challenging for humans to execute.

Crypto trading bots generally fall into four categories: arbitrage, market making, technical trading, and profile automation. Each category has pre-built bots available, or users can choose to develop their own customized bots.

While bots can streamline trading processes, profitability is not guaranteed. The intricate algorithms and immense computing power accessible to large institutional investors give them a significant competitive advantage, which the average crypto trader does not have. However, even open-source bots can generate marginal profits that may surpass index tracking.