4 Types of Cryptocurrency Trading Bots

Chris Wyatt

Chris Wyatt

Chris has been in crypto since 2015 working with crypto trading bot companies and crypto trading exchanges as an expert consultant.

Type of crypto trading bots

Trading bots are not a new technology as they have been used in traditional financial markets like Forex, Stock Markets and commodity trading since the 1950s. Although, back then it was not so easy to create a trading bot. You would need teams of developers to build, maintain and run these money-making programs.

Today, it is a lot simpler to create a trading bot. 2022 is proving crypto traders with an array of options to help you choose the best crypto bot to trade with profitably. 

Recently we wrote an article on crypto trading bots in 2022 which we invite you to read next to understand more about what a crypto trading bot is and why you should use them to help you trade.

In this article, we’ll take a closer look at different types of crypto trading bots.

There are two main use-cases for trading bots.

Firstly, crypto investors can use trading bots to make the whole trading process a lot simpler and hands-off. The bots can take care of parts of the trading management like portfolio diversification, portfolio indexing and portfolio rebalancing to name a few.

The second use-case of a trading bot is more advanced and where the fun begins. Crypto trading bots aim to always beat crypto markets and consistently make profits using a set of pre-defined rules either set by you or the bot creator.  Make sure that you do your due diligence before using any crypto bot service and make sure that you understand how the trading bot works and risks associated with bots and trading the financial markets in general. 

The crypto market is open 24*7 and is a highly volatile market to be in, in fact, it is the most volatile market available to investors. This is why the need for trading bots is needed more than ever before. 

Many people buy and hold Bitcoin, Ethereum and another coin in a portfolio on Coinbase or Binance for example, and that’s great when they are making moves and pumping above your entry price. What happens when they are only moving sideways or worst yet, dumping down? 

When you use a trading bot you can still hold, however, you can also trade to accumulate more of the coin you already own as its dropping or moving sideways. This way you, when the market does pump and move upward your profits, will be great than your original purchase. 

Bots are a great tool for beginners and experienced traders, however, they can come with some disadvantages if you are not careful. Read this guide that explains the pros and cons of using crypto bots and what to look out for when choosing the right bot for you.

Ok, let’s take a look at 4 different crypto trading bots that you can use to become a profitable trader.

These are the 4 trading bots we will look at today.

Trend trading bots

Arbitrage bots

Coin lending bots

Market making bots

Since 2017 there have been many crypto bots join the crypto space and each has its own way of doing things. Some of these bot companies only have one kind of trading bot was as some have multi trading bots for you to choose from and know which one does what can sometimes get a little overwhelming especially if you are new to using trading bot platforms. 

Trend Trading Bots

First, let’s look at what a Trend is. A trend is the overall direction of a market or an asset’s price. In technical analysis, trends are identified by trend lines or price action that highlight when the price is making higher swing highs and higher swing lows for an uptrend, or lower swing lows and lower swing highs for a downtrend.

A Trend bot takes looks at the momentum of a particular crypto asset and, after analysing it the bot will execute any buy or sell orders that have been programmed.

At a basic level if the trend is moving up, the bot will enter a long position, and if the trend is going down the bot will enter into a short position.

For a bot to determine a trend, they use price action, and other technical indicators, for example, moving averages, momentum indicators, trend lines, and chart patterns.

Arbitrage bots

Before we dive into what is an Arbitrage bot, it good to understand what Arbitrage means. 

Arbitrage is the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivatives to take advantage of differing prices for the same asset. 

What is Currency Arbitrage?

Currency arbitrage is a forex strategy where a forex trader takes advantage of different spreads offered by different brokers for a particular currency pair. Currency arbitrage involves buying a selling currency pairs from different brokers to take advantage of miss priced rates. 

An Arbitrage bot exploits a difference in the price in markets. In cryptocurrency markets, this is especially relevant. While simultaneously purchasing and selling an asset, you can profit from different spreads.

This is why arbitrage crypto bots are programmed to track the difference between the coin prices in different markets. This gives them the data to then buy the coin where the price is lower and to sell where it is higher.

Arbitrage bots were most popular before 2017 although these days it’s a lot harder to exploit as the spread between exchanges is much narrower than it used to be.

Coin lending bots

One of the exciting ways to earn on cryptocurrencies is to lend coins to margin traders who will later return you the loan with a percentage. Although it is a drawn-out process to keep setting new loans every time a margin trader returns your money to arrange a new loan.

Coin lending bots help you automate this process so you can spend less time looking for the right interest rate, and take advantage of possible spikes in different lending options. If you have not used one of these bots before you should do as much research as possible to make sure that you understand how the process works manually for you automate coin lending.

Market maker bots

This bot uses the order book spread of the market to bring you profits.

The more actively an asset is traded, the wider the spread will be, and that gives you more potential profits for the bot to return. The main goal is to sell to investors at a higher price than what you paid as often as possible.

To end this post I want to make clear that this article has only discussed briefly 4 different trading bot possibilities that you can use to trade crypto. There are more types of bots on the market such as Grid Bots, Leverage Bots and Scalping Bots. 

Crypto Trading Bots are a great tool for many traders looking for an edge in the market and for a trader that may not have the time to sit in front of a computer screen watching the charts all day. Remember cryptocurrency markets are open 24/7 and are extremely volatile so you a bot can really be a blessing as we are only human and we need to sleep. We hope that you have found this blog post useful and make sure to check out all the bots we have listed to help you choose the right one for you. 

P.s. if you have used a trading bot before let us know which ones you like in the comments.  

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