Crypto Trading Robots: Benefits, Risks, and Potential Outcomes
The advent of trading robots did not start with cryptocurrencies. In fact, these automated trading tools have been in existence long before anyone could have imagined Bitcoin or Ethereum. At the same time, you cannot deny that the widespread adoption of cryptocurrencies have lifted trading bots from the shadow they were in. Nevertheless, there has been a gap about these Artificial Intelligence (AI) products that need to be filled. This gap has everything to do with educating investors and traders about the bots themselves.
For long, a chunk of investors had adopted bots without actually knowing how exactly to apply them or the risks associated with using them. This action has led many to losing their trading capital. For some who dedicated their savings to trading, it has led to a glaring drawback in life. Be that as it may, we have put together this article to help readers understand trading robots, the risks, advantages, and everything else related. So, it does not matter whether you are an experienced trader or a complete newbie, this article contains vital information that will be useful to you in the short term or long run. Therefore, we will be doing you a great disservice if we jump right into this informative content without defining what trading robots are. So, first, what are trading robots?
Trading robots, whether in forex or crypto, are software programs, backed by AI to help identify trading signals, execute trades automatically and ease the need for the presence of traders. In other words, you can describe these bots as tools designed to make traders more successful. As pointed out by the Bitcoin Profit website, trading robots can be beneficial to traders and help them “tame the volatility of the markets”. In the same vein, they can be detrimental to the objectives of investors. Due to these positive and negative possibilities, trading bots cannot be said to be a necessary tool for investors. But first. Let’s examine the pros and cons of engaging these tools.
However, you should note one thing. As much as trading robots can be enticing, they can be risky too. For beginners, it is not advisable to use robots in your trading strategy. This is because bots can be sometimes complex to use. On the other hand, it may not be a problem for experienced traders. Nonetheless, both demographics should be careful in employing them.
Much more than successful trading, trading robots have one universal benefit— that is to automatically execute trades. However, the use of these tools have surpassed streamlining it to one role. So, in this section, we will highlight some other benefits that trading bots bring to the crypto ecosystem.
- Crypto trading robots can help automate trades at any time of the day. This implies that it does not matter if it’s day or night, crypto bots work 24/7 since the market has no stop time.
- Trading robots are faster than humans. So,this makes execution more efficient than manual trading.
- Bots can also offer better trading strategy because it has almost no emotion and can offer traders better discipline and risk management approach.
Like the way bots have advantages, they also have downsides. So, in this part, we will briefly look at the potential drawdowns you can experience from using crypto trading bots.
- Trading robots can be risky to use when your internet connection is shaky. So, you need a stable network to reduce the risk of losing your invested capital to the market.
- Another downside is that you could be scammed. This is because not everyone offering a crypto bot as an addition for trading cares about your success. For some it’s just about onboarding users or making money from it. So, you need to be extra careful.
As we mentioned earlier, the use of trading bots did not begin with cryptocurrencies. Traders who have been dedicated to the forex market using tools like MetaTrader 4 have been bot users for decades. But the beginning of automated trading robots did not also begin with MetaTrader forex investors.
It would interest you to know that this system dates as far back as 1949. It was during this period that Richard Donchian used the concept in buying and selling of his assets. However, the concept did not become so popular until around 1980 when John Henry, who later became a worldwide known trader began to use the strategy effectively. Far and wide, trading robots are now used across almost all parts of the financial market. Investors who trade assets in the New York Stock Exchange and NASDAQ have been known to use bots for successful trading, and since the crypto market came on board, these bots have also played their parts.
We have dedicated this section to answering all your questions about crypto bots. So,ensure you go through every line to understand everything you may have found confusing.
This is one question that a lot of people ask. Interestingly, it is one of those that is straightforward to answer. So, if you are wondering how trading bots work, here is a brief summary. With the help of artificial intelligence, crypto trading bots get data from the market momentum, and exchanges to develop potential movement of a particular asset. In turn, the bot reveals this signal to a trader, and also has the ability to automatically execute the trade.
Legitimacy of any kind is relative. Sometimes, it differs from region to region or state to state. However, the larger part of the world considers trading robots legal. Even though some of these bots might pose some risks, they are still acceptable in many countries. However, one part you should consider when looking at its legitimacy is if crypto trading itself is legal in the country you reside. So, bots can be considered illegal if they do not align with the crypto regulations of a particular region. Because of this, it might be necessary for you to ensure that you get the correct information regarding the crypto policies in your region.
In addition to this, you should remember that bots being legal does not mean that it is safe. In clear terms, most of the outcome you’d get largely depends on how well you can use them and read the market. Hence, be very vigilant and do your due diligence.
There are no guarantees to making money in any kind of venture. It is the same with the cryptocurrency industry— whether manual or automated. However, some uninformed investors believe that using trading robots means no losses. Unfortunately, that is not anywhere near the truth. Of course, you may also find some parts of the crypto industry saying that bots’ involvement in trading guarantee 95% of trading success. Let’s be clear. No use of crypto trading robots guarantees you any kind of profit. So, it is best to learn, and test your skills before using these tools.
For most trading robots, you do not have to worry about payment. However, there is one part you might consider as payment— your trading account, withdrawals fees or commissions. Most brokerage platforms do not charge you for using the bots. However, you may be expected to have some minimum amount for your trading account to access trading bots usage. Another set of platforms also charge commissions on every trade or a small percentage on withdrawals. However, these withdrawals are usually so low that you hardly need to worry about them.
To end this article, let’s remind you that adding tools to your crypto trading strategy is no guarantee for success. With crypto trading bots, it is not a different scenario. So, it would be best that you learn more about these tools beyond this article. That is if you plan on using them for your investments. While we may have touched the fundamental parts, forging ahead to do more research will do you no harm. Lastly, do take this article as an informational one. We will not be responsible for the outcome if you decide to take financial advice from here.