Algorithmic Crypto Trading and Its Benefits for Professionals
Algorithmic are widely used in traditional trading. Since the 1980s, stock markets integrate automated digital tools to facilitate the traders’ experience. Today, 90% of stock trades are algo-based, according to JPMorgan. It’s obvious: machines are way better in monitoring rates 24/7 and making swift deals. You know, reaction matters.
But what about the crypto space? Being even more dynamic and never-stopping than traditional exchanges, this industry faces a number of concerns related to automation. What are the reasons? How algo trading works when it comes to cryptocurrency? What are the pros and cons of this approach for experienced market players? Let’s figure out.
Three Sides of Automated Trading
In a nutshell, algorithmic or automated trading stands for making deals using specially-programmed software. Most of the pro traders have certain plans or strategies, e.g. open a long position when BTC below $10,000, set a Stop Loss at $9,500, and take profits above $11,000. This and other strategies are algorithms that a user can input in the program to automate execution.
Algo crypto trading has three main incarnations:
- Automated bots.
- API-based terminals.
- Hybrid solutions.
Moreover, there are modern algo systems based on machine learning and AI. They provide for predictive trading. This means users don’t have to create specific strategies to enter markets. Instead, they should develop or purchase a preprogrammed solution trained on Big Data. Despite the lucrative potential, such neural networks are in the nascence stage only.
Now, let’s look at three key algo trading options.
The most famous approach is based on automated programs that trade on your behalf. Bots connect to crypto exchanges using API keys, track market conditions, and execute orders once the required condition is met. Usually, each bot is designed for a specific exchange and coin pair but there are also universal tools.
Ultimately, there are two types of bots:
- Preset. Algorithms are hidden and traders can’t change them. Developers provide excessive info about trading conditions, in this case.
- Customizable. Users can change or set their own trading strategies while the bot brings them to life. Often, these programs require coding skills.
Additionally, these algorithms differ by strategies used: for long or short trades, for trend trading or day trading, for scalping, for arbitrage, etc. Blockonomi has a comprehensive guide dedicated to crypto bots, their differences, pros, cons, and use cases. Check it to find a few examples of solutions.
Unlike bots that are focused on automation but work with only one or a few exchanges, crypto terminals opt for the opposite. These platforms also use API keys but connect to dozens of exchanges simultaneously. They allow users to make quick deals by accessing several markets from one place. In addition, traders can access other tools like coin trackers, portfolio managers, etc.
Another distinctive feature of terminals is based on expanded functionality. While even the leading exchanges like Binance and BitMEX offer only basic orders, terminals support advanced stuff: Trailing Stops, logical operators, hidden orders, and more. If you’re interested in this type, check out Superorder, Kattana or Crypto Terminal. Be sure to do your due diligence before paying for any service.
Finally, there are systems that combine features of both terminals and bots. Means, they support automated trading at several markets gathered under one roof. As a rule, hybrid systems are the most powerful but require solid skills from developers. That’s why they’re still rare and valuable for crypto traders. Already mentioned Superorder is a bright example. The team started with creating a simple API-based crypto trading terminal but added automation features. For instance, users can build their own strategies and launch them on the connected exchanges. Also, Superorder supports preset bots that don’t require designing strategies at all.
Major Advantages of Algorithms
Automation can bring trading experience to a new level. Precisely, you may be interested in the key benefits for pro traders:
- Error-free and emotion-free. A machine is a perfect executor. It lacks creativity in the good sense so it can’t move away from the predefined plan. As well, algo systems reduce various errors related to mistyped amounts or coins.
- Expanded functionality. A crypto terminal is a viable choice if you want to find new solutions. With advanced orders, it’s easier to define elaborate strategies. Simultaneously, all the tools in one place help to focus on the process.
- More time for analysis and/or rest. Bots and hybrid algo solutions take care of routine stuff such as rate checks and trades. Thus, a pro trader can dedicate more time and resources to market research or leisure.
- Nearly instant speed. Compared to common traders, bots and terminals are way faster. They are able to make deals in milliseconds to catch the required price or fill the order. It’s just impossible to outpace them without other machines.
Possible Issues and Pitfalls
Well, algo trading can be extremely profitable in the master’s hands. It benefits professionals, without a doubt. But there are a few drawbacks you should be aware of:
- Need for maintenance. Often, users rent a bot and forget about it. Algorithms don’t work in this way because of high market volatility. Thus, remember to check strategies regularly to tune them or get other bots.
- Scams and frauds. Sadly, there are companies that just cheat on users. To avoid problems, conduct careful research and use algo systems that provide a free trial. Thus, you can ensure efficiency and trustworthiness.
- Tech issues. As long as bots and terminals interact with centralized exchanges, they’re vulnerable to disconnects, hacks, and data leaks. Remember that 100% reliable software is only a dream, as for now.
Algorithmic solutions and, particularly, next-gen predictive services can reshape the whole trading layout. When (and if) humans become a minority, they will not be able to succeed in the world of machines. Even now, analysts from Bloomberg connect the rise of crypto markets with higher popularity of algorithms, as Cointelegraph reports.
It’s impossible to predict the future of cryptocurrencies. But algo trading has bright perspectives to stay. It’s almost indispensable for professional active traders so be sure to try one of the mentioned projects. Good luck!