Understanding the Different Types of Crypto Trading Bots

Just like there are a ton of algorithms that can be found in traditional financial markets, it is now possible to automate trading strategies in the crypto market as well. Crypto trading bots have popped up over the years and have garnered a lot of attention because they make it easier for beginners with absolutely no knowledge or experience regarding crypto to tap into the perks of this market. There is a horde of these bots that you can find in the market, including downloadable as well as cloud-based ones, which you can integrate with some notable exchanges.

Crypto trading bots are designed for beginner investors, along with experts, and they use to buy and sell strategies that are quite common in traditional markets as well as the crypto space. As their trading strategies vary, you have to consider which one you are comfortable with and then make a choice. Some of the top crypto trading bots you can find are:

Trend trading bots

The name of this crypto trading bot makes it quite obvious what strategy it uses for making trades in the lucrative crypto market. These bots are designed to assess the momentum of a particular cryptocurrency, analyze it and then execute buy and sell orders. If the trend indicates a rise in the price of a crypto, the trading bot will automatically enter a long position and it will go short if there is a drop in price.

As trend trading is based on the assumption that an asset will continue moving in the same direction as the current one, trend trading bots also operate on the same principle. They can use technical indicators, including price action, momentum indicators, moving averages, chart patterns, and trend lines.

Arbitrage bots

As the name indicates, the concept of arbitrage is used by these trading robots. Arbitrage involves the exploitation of an imbalance in the prices of cryptocurrencies on different exchanges. This can be quite relevant, if the crypto market is operating inefficiently because traders will be able to buy and sell an asset and profit from the price difference.

Hence, arbitrage crypto trading robots are developed for tracking the different between the price of a cryptocurrency on different exchanges and markets. They purchase the coin from where the price is low and sell it where the price is high. Before the 2017 hype of the crypto market, these bots were immensely popular, but they have become difficult to exploit recently because the spread between various exchanges has become a lot narrower than what it was.

Coin lending bots

Lending cryptocurrencies to margin traders is one of the exciting ways to earn in this market. The loan is returned to you later with percentages. This margin funding option is offered by a few exchanges, such as Poloniex and Bitfinex, but setting the parameters every time the loan is returned and arranging for a new loan can undoubtedly be tedious. This is where you can take advantage of coin lending bots because they are designed to automate the process, which means you don’t have to spend a lot of time trying to find the right interest rate and benefit from increase in lending options.

When you are setting up a coin lending bot, you can adjust the strategy by withholding lending until the interest rate reaches a specific number, select a cryptocurrency and highlight the date you want the loan returned. You can find some of these coin lending robots for free and some are even offered by exchanges that engage in margin trading.

Market maker bots

These crypto bots are designed to use order book spreads for bringing profits to the users. The more actively crypto is traded, the wider its spread, which means these market maker bots can generate higher profits. The primary principle is to sell the crypto at a higher price to investors than its actual price and do it as frequently as possible. These bots place an order for crypto with a price that’s different from the existing price in the market, which makes a market and earns money for the user. The bot operates 24/7 and scans the market for a wider spread, which gives traders advantage of volume, time, and price.

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