Cryptocurrencies are an excellent way to make money passively. All you have to do to be convinced of this is look at all the innovations spawned by the industry since the birth of cryptocurrencies, just under a decade ago. There is a wide variety of software systems offering many benefits, from conducting a BTC profit test to trading for you and letting you do other things in the meantime.
Trading bots, also known as automatic trading software, are the latest — and some might argue the greatest — innovation to hit the cryptocurrency scene.
Trading bots have always been there in other markets, such as the foreign exchange (forex) and stock markets. However, when they first came on the scene, they were the preserve of large hedge funds and other institutional investors. With the lowering of the barriers to entry to the financial markets, trading bots began to appear that could be used by the regular trader. They first became a major hit in the 24-hour forex market. With their massive success there, it was only a matter of time before they came onto the crypto scene.
With trading bots, crypto traders can cut down on the amount of time they invest into trading, freeing them up to pursue other interests. Additionally, the speed and efficiency of a trading bot are such that a trader can take advantage of more opportunities, many of which he or she would not have been able to take advantage of while trading manually.
Trading Bot Strategies
Trading bots are pretty young in the crypto market as compared to their maturity level in other markets. Despite this, however, there are plenty of strategies that can be used with crypto trading bots to turn a profit. Since the cryptocurrency market is a digital market, with everything happening online, there are plenty of opportunities to make money. Couple this with the fact that the market is still young and inefficient and you soon realize that there probably isn’t a better time than now to invest in the crypto market. The two strategies below are the most popular ones employed using trading bots in the cryptocurrency market.
This is one of the earliest strategies to be employed in any market, not just the cryptocurrency market. The principle behind arbitrage is fairly simple: A trader identifies two markets for an asset. In one of those markets, the asset is trading at a significantly lower price than the other, giving them the opportunity to buy at a low price from one market and sell at a high one in a different market. Since the crypto market is digital, the only fees incurred are transaction fees, making the potential for profit very high.
Arbitrage works very well in an inefficient market, and the opportunities generally fade as the market grows more efficient. The crypto market has grown more and more efficient over time, eliminating the blatant opportunities for arbitrage. However, due to their efficiency and ability to make many trades in a short amount of time, trading bots can still take advantage of arbitrage opportunities, making them a prized tool in any trader’s toolbox.
Trading bots also make it possible to use market making as a strategy. With market making, the trading bot trades in many different spots and derivative contracts in a cryptocurrency to realize a profit. The trading bot will pose as a buyer on some platforms while posing as a seller on others. It implements both arbitrage and various other strategies to realize a profit. This strategy is more profitable than arbitrage. However, it is also riskier due to the increased complexity.
Trading bots make it possible for the regular trader to use the same strategies as the large hedge funds and make a fortune in the process. That’s why they are getting more and more popular as each day passes.