Cryptocurrency trading and investments have gained popularity in the last few years as more people are beginning to express interest in alternative markets. This enthusiasm has led in turn to the popularity of crypto trading bots. Cryptocurrency trading bots are advanced programming software used to automate cryptocurrency trading. These trading bots buy and sell cryptocurrencies in such a way that best returns can be gained from a particular trade. Crypto bots can constantly scan and analyze several factors including market data, historical charts, latest trends, and announcements that can potentially affect the price of a particular cryptocurrency, which is to say they work on behalf of the investors.
Unlike the forex market that runs from 5 p.m. EST on Sunday until 4 p.m. EST on Friday, cryptocurrency markets run 24/7. This makes trading bots more prevalent in the industry than any other. Additionally, these bots also allow traders to conduct manual trading. They can set manual parameters and the bot will conduct trade as soon as they are triggered. These trading bots have many advantages for beginner and expert traders alike.
Types of Bots
There are several types of cryptocurrency bots the most popular being Arbitrage (buying crypto on an exchange where the price is low and selling on another exchange where the price is high) bots. Other popular options are bits that are programmed to act to hedge volatility or trade based on historical data.
How Bots Work
Bots work based on what they were programmed to do. As such bots are only as good as the developers and the rules they are to run by. Also, different bots would need different hardware and software computing resources. They are tools that allow you to execute trades automatically when specific conditions for that trade are met. These bots take into account information, like current prices and volatility levels.
How to Spot Fake Trading Bots
As with everything investing, there exist those who want to stretch the truth or use outright lies for personal gains at the expense of others. These maleficent individuals use bots as a pretext to hoodwink novice traders or investors. It is particularly important to know how to identify swindles, especially trading bots which promise to aid trade. Here are some pointers for identifying fake trading bots
High or consistent ROIs – The greater the expected return on investment, the greater the risk. Hence a sure method to spot fake trading bots is to look out for promises of high or consistent returns. The cryptocurrency market is highly volatile, hence anyone promising a bot that would deliver consistent returns is a fraud.
Zero human supervision – Dmytro Volkov, CTO at CEX.io. When asked the questions Who should use a trading bot? How does one know if a trading bot is in fact a scam? Dmytro Volkov admitted that some trading strategies do require quick actions and calculations. He said since humans cannot perform such trading strategies this task is left to a trading bot. However, according to the CTO, the “most successful trading strategies still require constant supervision and guidance from experienced high-skilled human traders – quants.” So, whenever you come across trading bots that claim they are fully automated, relying on no human intervention, it is a scam.
Pyramid Component – If you are or promised more income or a more trading strategies coded into your bot if you refer others, and they buy the bot then you are dealing with a pyramid scheme masquerading as a crypto venture.
Read Reviews – Before using or buying any bot make sure you go online and read reviews. Check out the sub-reddit for cryptocurrency and ask questions about the bot. Also, visit reputable crypto new websites and forums and search to see what others have written about the bot.
Conclusion
Scammers are increasingly targeting inexperienced traders with so-called sophisticated trading software and trading bots. Since the prospect of making constant winning trades or above-normal returns is so tempting, many inexperienced crypto traders lose a lot of money to scams that claim to use these apparent sophisticated mechanisms. Take your time to get familiar with cryptocurrency trading. Start small as the markets are highly volatile. Finally, conduct thorough research and only with individuals and organizations with a good reputation in the crypto community.
Contributors:
- Oluwabunmi Adeyemo
- Blessing Oyekanmi
- Abasiama Emmanuel Udo