Many newbie crypto buyers are looking for a trading bot to help navigate volatile markets. Can these software programs be entrusted with your money? — studied Justin Varghese, Your Money Editor on Gulf News.
Bots are nothing but automated computer programs designed to run specific tasks with minimal human intervention or interaction. But how safe are they? Can they be entrusted with your money?
In the world of cryptocurrency trading, crypto trading bots do the work of trading either one or multiple cryptocurrencies on one or multiple platforms automatically on behalf of the owner or user.
This software helps you buy and sell cryptocurrencies at the correct time. The main goal of this software is to increase revenue and reduce losses and risks.
These applications enable you to manage all crypto exchange accounts in one place. Many such programs allow you to trade for Ethereum, Litecoin, Bitcoin (BTC), and more with ease.
Let’s look at why even though crypto bots can be a helpful tool for those looking to trade cryptocurrencies, being aware of the risks involved can otherwise prove costly.
How do such trading bots function?
Trading bots allow cryptocurrency investors to automate buying and selling of positions based on key indicators. There are increasingly popular as cryptocurrency trading becomes more mainstream.
Many people are attracted to the idea of making money from cryptocurrencies without having to put in the hard work of manually buying and selling them.
Crypto bots implement specific trading strategies, competing to attain the highest ‘win rate’, which is the percentage of profitable trades.
There are plenty of different strategies that trade-off on a variety of indicators, and if you already trade based on indicators a trading bot may help streamline this process.
Reality? Not every bot is profitable
It’s important to note here that not every bot is profitable, and current statistics indicate that most aren’t.
Although the bots are ideally meant to generate a profit and that profit is greater in risk-adjusted terms than had you have just bought the same coins and held them throughout, but in reality, it may not be so.
So while cryptocurrency trading bots can be very profitable, they also come with risks. If you’re thinking of using a bot, it’s important to do your research and understand how they work before you start.
For example, the risk of bot account being hacked and API (connection between computers or between computer programs) keys stolen, wrong bot settings, errors in the algorithm that will generate losses instead of profits, sudden crypto market movements, etc.
Traders may end up losing their funds or buying a large position in a low-liquidity token. There are many different types of crypto futures bots available, each with its own strengths and weaknesses.
Some common features include the ability to trade on multiple exchanges, set up custom indicators and strategies, and integrate with external services like Telegram.
Crypto Bots: Know these risks and perks
Cryptocurrency trading may be made more gratifying by utilizing a crypto bot. By automating trades based on your predetermined criteria, crypto bots can take the emotion out of trading for you.
This can help you follow your trading strategy and make money without losing patience due to emotions such as fear or insatiability.
Another benefit crypto experts note is the fact that crypto bots can also save you time by taking care of all the paperwork for you.
However, one of the most significant drawbacks of utilizing crypto algorithms is that they can be costly. Some suppliers demand monthly fees, while others take a cut of your earnings.
Another thing to keep in mind is that crypto algorithms aren’t perfect and can occasionally fail. Before putting any real money down, it’s crucial to test them out on a demo account.
Crypto algorithms aren’t perfect and can occasionally fail. Before putting any real money down, it’s crucial to test them out on a demo account.
What precautionary steps can you keep in mind?
- Stay clear of bots that promise you income after depositing your crypto into their ‘smart contract’. Real bots operate only through an account on a reputed cryptocurrency exchange.
- Ensure that you see all trades of your bot. Your API keys should not allow a bot to make withdrawals from your exchange account. Permission to make trades is enough for all strategies.
- Always cap your risk. Register a new account on your exchange. Experts recommend that by doing so you limit your worst-case losses to the amount, allocated in this account.
- Start small. The minimum order on most exchanges is often enough to have 10-20 orders deposit value to try the crypto trading bot.
- Trade safely with proven crypto. Trade only high-volume cryptocurrencies. They have enough volatility to let bots do their job and enough liquidity to close your position if you’ll need it.
- Be conservative. Don’t seek to catch every market move lower when it comes to the bot being triggered at a particular level to make a trade.
For instance, a 1% to 5% trigger works well for the most beginners, experts evaluate, which means the price should move by at least 1% for your bot to make one trade.
What if your crypto bot is making too many losses?
If you end up with your cryptocurrency bot buying too many coins during the sudden market decline, experts suggest trying one of the following:
- Fix your loss. Stop your bot, sell coins manually. This way you’ll immediately release your funds for future trade, but in doing so you’ll lose your option to recover this exact trade.
- Keep waiting. Probably, the market will hit your take profit order and the bot will finish its job successfully. While this may never happen, and the crypto can go deeper and never recover, your assets are kept frozen and you still have chances to earn from this trade.
- Launch another bot in the opposite direction, so it will sell purchased coins during market growth. This can be considered as a compromise between the first two options. Probably the bot will not sell all coins with profit, but it can step-by-step reduce your position.
- Stop the bot, buy more positions of your trade, reduce the average purchase price doing so. Then try to sell your position with profit on a lower level. However, experts add this option to be the most risky and is not recommended to anyone without proper trading experience.
You may risk losing your capital through fraud or poor trade execution as crypto bots are not infallible and can possibly make losses.
If you do not select a reputable and trustworthy crypto bot provider, you may risk losing your capital through fraud or poor trade execution as such bots are not infallible and can possibly make losses.
So when choosing a crypto bot provider, it is important to do your research and select a reputable company with a good track record.
You should also test the bot out on a demo account before investing any real money. As the cryptocurrency market evolves, crypto bots are likely to become more sophisticated and widespread.
As a result of their convenience and automated nature, many more individuals will begin utilizing them to trade cryptocurrencies.
It is possible that in the future, crypto bots will be able to trade other assets such as stocks, commodities, or even foreign exchange.
In other words, carefully select a reputable provider. With careful research and testing, crypto bots can be a profitable addition to your trading arsenal.
However, unlike traditional investors, those who hold crypto can’t expect to get dividend payments from their portfolio.
That is why automated trading can be an opportunity to get some profits from crypto market volatility without investing more into it.