Having a crypto trading bot that can bring you a profit while you relax on the beach with a margarita sounds like the way to go. Whether you’re trading stocks or cryptocurrencies, software that does everything for you almost sounds too good to be true.
And it kind of is.
However, classifying every single trading bot as a scam is unfair. Some legit providers will give you a piece of software to help automate your trading.
But at the end of the day, even the most expensive, professional, premium trading bot you can acquire is only as good as your trading strategy.
Let’s see why.
Table of contents
What Are Trading Bots?
First, regardless of whether it is trading stocks, collectibles, or cryptocurrency, a trading bot is software. You install it on a computer and set it to trade assets on your behalf while you’re away from your computer and all your exchange accounts.
As a trader, you must offer the trading bot parameters and a strategy it can execute to trade faster and more accurately.
Furthermore, an automated crypto trading bot software can use more than one bot to track and trade several assets simultaneously. The practical side is that you don’t have to follow countless screens simultaneously to catch as many market opportunities as possible. At the moment, you can also try out AI crypto trading bots, as they might offer a more customizable experience.
How Does a Cryptocurrency Trading Bot Work?
There is no exact bound to one programming language for building trading bots. A cryptocurrency trading bot can be developed using C/C++, Python, or even MATLAB. However, the type of algorithmic strategy, frequency, and volume employed will have a substantial impact on the design of the system.
And without more technical knowledge, you need to investigate the software to determine if the trading bot can be used for day trading or long-term strategies.
A trading bot software usually contains a backtesting tool, a portfolio manager, a risk manager, and an execution engine.
The backtesting tool allows you to simulate your trading strategy in a sandbox of historical market data. This will enable you to check if your approach fits the market conditions and what results it can bring.
The portfolio manager administers a set of trades and optimizes the allocation of funds to various strategies according to factors such as sectors, asset classes, volatility, etc.
In trading, there are several ways for the risk to come as increased volatility, increased correlations between asset classes, or “black swan” events. Therefore, a trading bot’s risk management systems have the role of trying and anticipating these events’ effects on the trading capital.
In the end, the execution system has the task of receiving filtered trading signals from the portfolio management and risk management components and sending them to a brokerage or other means of market access.
And no, it will not make a phone call to the broker.
The trading bot will connect itself through an API to a trading platform. The software will then read information from the exchange about the asset prices and volumes to execute trades on your behalf.
The trades are only executed when the markets hit specific parameters. And this is where the strategy comes in.
So, we mentioned before that the trading bot could only be as good as your strategy is. That’s because the software will only act according to your strategies and settings.
What Can and Can’t Trading Bots Do?
In a way, trading is a lot like a strategy game. You devise a plan to reach various goals while adapting to random events thrown at you by the game. The main difference is that in games, the uncertainty factor goes down the more you play and the better you become.
A random event like a draughty year or an invasion from a neighboring country is less impressive around the endgame. No minor setback can prevent you from beating the game when you have already stockpiled food and have an invincible army.
But this flaw of strategy game design does not apply to the world of trading cryptocurrency or other assets. You can spend your whole life mastering trading, and a random event like the 2020 Pandemic, the 2022 Russo-Ukrainian War, or the 2022 bankruptcy of FTX can still come as a surprise.
But we can say for sure that trading bots have their strengths. And when it comes to facts, here are some of them.
What Can Trading Bots Do?
Execute Trades 24/7
Yes, a trading bot can trade 24/7. However, the software needs constant attention, and the parameters require optimization. You can let a trading bot operate successfully overnight but not over a week;
Act Based on Previously-Set Parameters
Sudden drops and bounce-back are quite the norm in the cryptocurrency space, so it’s no surprise to feel the temptation to sell everything when you see the price of your assets falling 10%. But a trading bot set to buy at -5% and sell at +2% will stick to this parameter, whatever crypto fear and greed index might show. And if you set a stop-loss order at -20%, the bot won’t panic even if the price goes as low as -19%. With a grid trading bot, for example, you set parameters for highs and lows, thus programming grid bots to sell high and buy low.
Tests Strategies Based on Historical Data
This happens to evaluate if a trading strategy could fit the market. But because the plan is tested on past events, it wouldn’t be surprising to get positive results in backtesting and wake up with a loss on the live market. That’s because even though there are similarities and cycles in a market, the conditions are never the same.
Help You Save Time
The sole fact that the bot takes care of placing the order and tracking the parameters can save you anything from a few minutes to several hours.
On the other hand, there is a lot of fiction surrounding falsely advertised cryptocurrency bots.
What Can’t Trading Bots Do?
The Don’t Come up with New Strategies on Their Own
A trading strategy can be profitable for a while, but it will most likely fail to bring the same results when the market condition changes. Trading bots do not build new strategies by themselves but wait for you to set up new parameters.
The Don’t Correlate Real-World Events with Market Conditions
A trading bot won’t take any action to sell or buy airline companies’ stocks when governments worldwide put or lift restrictions on traveling. In the same way, a cryptocurrency trading bot will not take any action when a network is compromised. Although a human trader will immediately make a correlation and change the tactic, the trading bot will still stick to the initial plan.
It Doesn’t Foresee the Future
Although probability and statistics are legit fields of study, no algorithm in any trading bot can predict what will happen and how a market will evolve, whether cryptocurrency trading or stock trading. Risk management components and indicators can only show probabilities that the markets will evolve in one way or another.
Are Trading Bots Legal?
Before cryptocurrencies, the question was, “Are stock trading bots legal?.” And as cryptocurrency trading took proportions, Bitcoin trading bots started to pop up on the market.
In both cases, trading bots are not specifically regulated as being illegal globally. However, you may have to check if there are any legal mentions in your area.
But generally, cryptocurrency trading bots and stock trading bots are legal.
Also, you may have to check the platform you use for trading for any policies regarding trading bots.
Automated trading software offered by legit companies does usually tell what trading platforms they support.
But while trading bots are legal, you still have to look out for scams. Any offer that sounds too good to be true may not be worth trying. There are no guaranteed returns and no magic behind algorithmic trading software.
Top Crypto Trading Bots You Should Look Out for in 2024
Here is a list of the best trading bots that you might find:
Bitsgap
Year Established: 2017
KYC/AML: No
Supported Exchanges: Binance, KuCoin, Coinbase, Kraken, HitBTC, Bybit, OKX, HUTX, etc.
Bitsgap created a unified solution with an easy-to-use interface to provide a hassle-free trading experience. The Bitsgap trading bot is a unique feature that allows you to profit from every market move in minor but consistent amounts.
In addition, Bitsgap features a fully secure and consistently quick interface, with over 10,000 cryptocurrency trading pairings available on the site. You may also check transaction history, track open positions, and manage your balance on your linked exchanges.
The platform employs RSA 2048 encryption, making it twice as secure as most banks. Employees aren’t allowed to see sensitive information. Bitsgap has three pricing plans: Basic Plan – $25/month; Advanced Plan – $59/month and Pro Plan – $129/month. It also offers a free plan that includes unlimited manual trading, a 30-day free demo, 10 active bots in demo, and a multi-exchange trading platform.
HaasOnline
Year Established: 2013
Supported Exchanges: Binance, Bitstamp, CEX.io, Coinbase, HTX, Kraken, KuCoin, etc.
In the history of crypto, HaasOnline stands to be one of the oldest and the most reputable crypto trading bots. Most experienced traders prefer this bot due to its efficiency and profitability. Furthermore, those using the bot can connect with leverage platforms and crypto exchanges using their API keys.
This application has 15 bots that allow you to define your trading strategy, such as dollar-cost averaging and paper trading. In addition, HaasOnline has leveraged marketing data and other tools to maximize profits, MACD, and other indicators. The current pricing plan for HaasOnline is $9 for the Lite+ package, $49 for the Standard plan, and $99 for the Pro package.
3Commas
Year Established: 2017
KYC/AML: Yes
Supported Exchanges: Binance, Bybit, OKX, KuCoin, Bitfinex, Bitget, Bitstamp, Coinbase, Gate.io, Gemini, HTX, Kraken
3Commas works on tens of crypto exchanges, offering users dollar-cost averaging strategies and an integrated trading view from third parties. 3Commas is among the trading bots crypto platforms currently have to provide for those interested in securing profit with minimal effort. This bot has several attractive features, including copying the settings you used on other bots. Traders can also balance their portfolios by maintaining coin ratios, allowing paper trading.
3Commas also assists its users in making money in Bull, Bear, and Sideways Markets. This crypto trading bot’s pros include its intuitive interface with the advance buy and sell feature on a single window. You can also trade options on an exchange. It is, however, daunting for newbies.
3Commas has 3 plans with different features. The Pro package is charged at $49 monthly, while the Expert plan rates at $79. The custom plan offers extra limits and needs to be discussed with the 3Commas team.
Notably, the 3Commas bot is available for both iOS and Android; therefore, users can easily make use of trade anywhere. 3Commas is gradually gaining in popularity, which means that it ranks among the best crypto trading bots.
Cryptohopper
Year Established: 2017
Supported Exchanges: KuCoin, Bitvavo, Binance, Crypto.com, Coinbase Advanced, Bybit, Kraken, BingX, BitMart, OKX, EXMO, Bitfinex, Polonium, HTX, HitBTC
Cryptohopper is one the most recognized automated crypto trading bots that allow crypto enthusiasts to have all their crypto accounts and manage them in a single place. Since it’s a cloud-based bot, Cryptohopper uses an algorithmic programming approach that helps users come up with intelligent trading decisions.
Currently, those using Cryptohopper can connect to up to nine different exchanges. The features of Cryptohopper include an automated technical analysis feature, protection of security protocols, and data privacy. Cryptohopper also has a straightforward and intuitive user interface that allows new users to explore.
The advantage of this crypto bot trading is that it’s easy to set up, as it requires no credit card information for new users. Cryptohopper also hosts all its cloud storage services, allowing traders to paper trade without being exposed to financial risk. These features are among the best trading bots crypto platforms have to offer.
However, this bot has several disadvantages, including a limited technical support force. Several charges are attached to Cryptohopper if you wish to enjoy its features. The Pioneer Package is free for all users, while the Explorer Starter package has a 3-day free trial, after which you will be required to pay $29 monthly.
The Adventurer plan asks for a monthly fee of $69, and the Heroplan is $129 monthly. But, overall, it still falls among the best crypto bots trading options.
ZIGDAO
Year Established: 2018 (launched DAO in 2023)
KYC/AML: Yes
ZIGDAO (formerly known as Zignaly) is among the newest crypto trading bots in the cryptocurrency market. This bot allows its users to develop their trading strategies from scratch. Looking at its features and pricing, ZIGDAO can be considered one of the best crypto bots trading options.
When you register to use ZIGDAO, you can use all the resources available for free until you make a profit. Users have the option to automate or semi-automate their trading exercises fully. However, it has over eight exchanges to which users can connect the bot, which is a significant disadvantage as there are not enough options.
Some of the features of ZIGDAO include the trading view integration, where the user can keep up with their latest trades. It also accepts copy trading, allowing users to copy the transactions made by other experienced and successful traders.
Besides, ZIGDAO offers free and paid signals, which could be an excellent resource for a trader. Finally, if you wish to perfect your trading skills using bots, ZIGDAO is the best trading bot crypto platform to offer.
Related articles: Best Cryptocurrency Exchange | Best Cryptocurrency App in India
Key Takeaways
- A trading bot is a software that executes trading orders automatically when it meets specific parameters according to a strategy;
- A trading bot software usually contains a backtesting tool, a portfolio manager, a risk manager, and an execution engine. The software connects to trading platforms through APIs;
- Regarding facts about trading bots, they can trade 24/7 according to the strategy, only act on parameters, test strategies on historical data, and save you time;
- Blowing up the fiction, trading bots do not: come up with new strategies on their own, correlate real-world events with the market conditions shown in the exchange platform’s charts, or foresee the future;
- Trading bots are legal in most places, but check for any mentions in your area. Also, stay away from bots that seem fishy and inadequately programmed software;
- Also, some of the most recommended bots in 2024 are Bitsgap, HaasOnline, 3Commas, Cryptohopper, and ZIGDAO (Zignaly).
