What are crypto trading bots?
Crypto trading bots are automated trading programs that buy or sell cryptos automatically, without your intervention, based on predefined rules and crypto trading strategies you have set for the bot.
You can use crypto trading bots to help to keep emotions away from your trading and make it possible to automatically execute buy or sell orders based on specific rules.
For example, if a certain crypto has reached a predefined price level, the crypto bot might automatically buy or sell the crypto.
There are different types of trading bots and they all function in a different way.
But these trading bots are all similar in one aspect - all trading is done automatically without your intervention.
Risks in trading cryptos using a bot
Is trading with crypto bots risk-free? No, it isn't. The exact risks depend on the type of trading bot we are talking about, but in essence, the trading risks are the same whether you are trading manually or using the help of trading bots when buying and selling crypto.
But the crypto trading bots can do the following:
- They trade based on predefined rules and help keep your emotions away from the trading decisions
- They are automatic and they do not require your hourly intervention
- They don't sleep and can trade 24/7
Are crypto trading bots legal?
Yes, they certainly are. But not necessarily all crypto exchanges allow the usage of crypto bots.
Different types of trading bots - or different crypto bot trading strategies
So what type of crypto bots are out there?
Arbitrage bots
Arbitrage bots compare the prices of the same crypto across different exchanges.
While the price of the crypto is generally the same across all exchanges, there are always minor differences. And crypto arbitrage bots tries to take advantage of them.
Bitcoin price can sometimes vary by a few hundred bucks across different exchanges. This case you would buy Bitcoin at the exchange where it's the lowest and sell where it's the highest.
But obviously, the price difference would have to make sense.
For example, at the time of writing this article, Bitcoin price in Binance is $40,339, at Kucoin $40,356 and at Gate.io $40,355. There's no real difference here now, so currently it wouldn't make sense to make a trade.
You can use Arbitrage bots at Cryptohopper, for example.
Grid trading bots
Grid trading bots work differently. Grid bot always places at least two orders. One above the current price and one below the current price.
Let's say you are trading Litecoin (LTC) and the current price is $200.
Before you start the trading bot, you need to set the grid upper limit, lower limit, and also grid quantity.
For example:
- Upper limit: $250
- Lower limit: $150
- Grid quantity: 10
The grid trading bot now opens 5 open buy orders and 4 open sell orders. The orders are placed $10 apart. So if the price grows to $210, the bot automatically places an order to sell and also an order to buy again at $150. In theory, this first trade gives you $10 profit.
Grid trading works the best with kind of stable (long-term), but relatively volatile cryptos.
Sandwich bots
Sandwich bots might be the best for cryptos with lower trading volume. How it works is that the trader first places a bid on one token and buys it. Then it makes another bid on the same crypto, but this bid is slightly higher. That higher bid *might* push the price of the crypto slightly up, so the bot immediately sells the coin again, making a small profit.
Smart rebalance bots
Smart rebalance bots are trading bots that run at specific intervals (or base the trading decisions on %) to restore the initial proportions of the cryptos in your wallet.
Smart rebalancing usually assumes that you are dealing with more than one crypto.
Read more about smart rebalance bots.
Crypto trading indicator bots
Many crypto trading bots can also use set trading indicators. For example the bot might trade based on specific MACD levels or Moving Average levels or even Bollinger bands. Trading indicator bots should only be used if you know exactly what you are doing.
Custom trading strategy bots
Additionally, there are also trading bots that use numerous different indicators based on your own exact settings. These bots are recommended only to the most knowledgeable traders.
Best free trading bots
When you're just getting started, we recommend you start with free crypto trading bots and there are cryptocurrency exchanges that offer them by default.
For example Gate.io has a good set of crypto trading bots - they offer Smart rebalancing bots, Spot Grid trading bots, Future Grid bots, Margin grid bots as well as trading indicator bots and custom strategies.
Another good free crypto bot provider is Kucoin exchange - they offer Smart Rebalancing, Spot Grid, Futures Grid and more.
Trading bots fees
How much do trading bots cost? As we just mentioned, there are enough free crypto trading bots which just take money for trading.
But there are also other crypto bots out there that are not free. These crypto bots might cost you anywhere from $10 to thousands of dollars each month.
The best paid crypto bot is possibly Cryptohopper.
Which trading bot should you use?
There are a number of different trading bots and which type of trading bots you decide to use depends on your preferences, risk tolerance and also your capital.
Best trading bots for beginners
The best type of trading bot for beginners is either Smart Rebalance bot or Spot Grid trading bot.
Best trading bots for maximum gain
Margin Grid bots give you the option to trade with up to 10x leverage (or even more), which means that you can profit from up to 10x more money than you actually have.
However, keep in mind that the more you can earn, the more you can lose as well.