Crypto trading bots are tools that are becoming increasingly popular among cryptocurrency traders. They allow users to automate entire trading strategies and go as far as to outperform the market, all while requiring zero input from the user thanks to automation.
Automation is a cutting-edge solution that stands at the forefront of the 21st century. It is present in manufacturing, transport, defense, information technology, and now in financial markets. Being a futuristic and widely disruptive technology, cryptocurrencies are naturally a home to automation.
Although manual trading continues to be the go-to option for trading digital assets, it is worth mentioning that tides are changing and that we see more and more users adopting trading bots. Some fully rely on the newly found automation while others simply use trading bots as a side tool that provides assistance.
With this lesson, you will learn the essentials of crypto trading bots and find out exactly how they work.
A cryptocurrency trading bot is a software program that automatically trades on exchanges. Instead of manually entering each trade into the exchange, the trading bot is able to access data from a users’ exchange account and automatically place trades. The process is managed through computers, which offers a level of speed and precision that isn’t possible with humans.
The strategies that these bots implement are capable of doing anything from trading, to constructing custom indexing strategies, to advanced real-time arbitrage across exchanges. The possibilities are nearly endless. Each trading bot generally implements a trading strategy that relies on algorithms that were created by the application developer.
Cryptocurrency trading bots work by accessing data on the exchange for a user. Each user is able to provide access to their account to the trading bot by giving the bot their API public key and API private (AKA secret) key. These two pieces of information are used as a way to tell the exchange that a bot has authorization, by you, to access your exchange account information.
APIs are a way for applications or services outside the exchange to access the data or features inside the exchange. Through these APIs, trading bots can request the latest market data, place a trade for a user, or collect information on the amount of funds in a user’s account.
Access to a user’s account is only granted when a user explicitly provides API keys to an application. At any time, access can be withdrawn by deleting the API keys on the exchange, providing a secure way to always maintain control over who or what can access your exchange account.
Finding these API keys on each exchange can be tricky, so we recommend consulting with an exchange’s respective help center or documentation to navigate linking your exchange accounts to trading bots.
API keys for trading bots usually have a variety of different settings. The two core settings required for trading bots are the ability to collect “Balance” data from your exchange account, as well as the ability to “Trade.” Each exchange offers varying levels of control over these two parameters, but generally, all of the settings under these two categories should be enabled for the trading bot.
Please note that no trading bot generally requires access to “Withdraw” funds. If a trading bot requires this access, be very hesitant to place your trust in this trading bot. The result could be you losing all of your funds.
This concludes our first lesson in the introduction to the crypto trading bots series. In the next lesson, we will cover their purpose and use cases.
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After you sign up and connect your first exchange account, you’ll deploy an investment-maximizing strategy in as few as 5-minutes.
Whether you create your own rebalancing strategy or completely custom automation, the ability to walk your own path belongs in the hands of every crypto investor.