The advent of the cryptocurrency boom in 2017 has made people jump into the bitcoins and altcoins trade bandwagon. Before innovations like crypto trading bots hit the market, the real challenge of holding or retaining a commodity in a global marketplace was its constant demand to stay active for the sake of it.
Recently, Steve Wozniak, the co-founder of Apple, admitted selling his entire bitcoin holdings as he was unable to keep up with the constant fluctuations in the prices. Without automated software like crypto trading bots, even the most dedicated trader would find it extremely difficult to stare at the crypto prices 24*7.
The high volatility of the cryptocurrency market makes it lucrative for traders. While big investors may not worry about huge ups and downs, ordinary traders can mint a lot of money and take advantage of this volatile market. The solution to attain some level of stability is using a crypto trading bot.
Automated crypto trading is not a new technology. Many companies have been using crypto trading bots for decades to buy or sell cryptocurrencies on global stock exchanges. Thus, to relieve the pressure from companies and individual traders building a crypto trading bot became popular.
What is a crypto trading bot?
A crypto trading bot is a software program that employs APIs to communicate financial exchanges. Their role is to evaluate actively and process exchanges all the time. Ultimately, they produce results and alert you according to the predetermined criteria they were programmed to achieve.
For example, if a trading bot is assigned to buy a commodity at a certain price and sell at another decided price, it will act according to the limit you set and probably make a profit. So whether you’re buying or selling bitcoins or any other cryptocurrency, these are the fundamental principles a crypto trading bot operates with.
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Different types of crypto trading bot approaches
In order to conduct and process complicated mathematical formulas as well as automate and speed up the trading process, the crypto trading bots operate with algorithmic trading. This brings us to the question of how to perform algorithmic trading. Below given approaches will give you the answer:
1. Follow the trend strategy
This is the most straightforward strategy where the bot directly responds to the market fluctuations. It doesn’t need highly sophisticated algorithms to process aspects like predictive analysis and more.
2. Arbitrage approach
This approach includes crypto trading bots disrupting the price differences between multiple cryptocurrency exchanges globally. Since there is no one central authority to determine the prices of cryptocurrencies, central banks take responsibility for dealing with fiat money. This is the underlying reason behind the fluctuation in prices. For instance, the South Korean exchanges had higher prices than those in the USA, providing potential profits to the traders trading across the two.
Crypto trading bots provide traders with the edge against this disparity by enabling them to trigger trades when the price differences are met.
3. Market Making
This approach enables traders to buy and sell high amounts of currencies and gain profit. Building crypto trading bots allow traders to become proficient in dealing with high volumes.
Download An Open-Source Crypto Trading Bot
You can build a crypto trading bot using several different ways. However, simply finding an open-source crypto bot that you can download and start using right away is the quickest, cheapest solution. This reduces expenses and development time while requiring only a minimal degree of technical expertise.
However, you will need to hire at least one skilled software programmer if you want to add your own features, continue development, address any bugs or security problems, etc. This strategy’s drawback is frequently making it more difficult to add your custom features or modify its trading algorithm because the bot has already been established.
How to build your own crypto trading bot?
If you can build a successful crypto trading bot on your own, you can get both personal and financial advantages. However, ensure that you have a passionate and dedicated team with relevant experience and expertise.
You can easily build your crypto trading bot within a few weeks. The arbitrage cryptocurrency trading bot developed by Carlo Revelli is one such instance. His bot, which he created using his “own python etherscan API wrapper and pythereum to construct the transactions and etherscan to publish them,” enables trading between two exchanges, Etherdelta and Bittrex.
Naturally, developing a more complex trading bot that can trade on numerous markets will take longer. Additionally, it will consume more effort to create the algorithm and ensure it is free of security problems that hackers may easily exploit.
Steps to build crypto trading bot
1. Select the suitable programming language
For instance, finding a trustworthy Python trading bot tutorial might make things much simpler for you.
2. Retain your APIs
Before you start developing, getting the APIs your bot requires to access the exchanges you want it to trade with is also a requirement. The happy news is that the key to currency data is made possible only via APIs provided by all significant cryptocurrency exchanges.
API links for currency exchanges:
3. Create a profile on all the exchanges you will use
Making a profile is relatively simpler than building a crypto bot from scratch. However, remember that the methods for creating fresh accounts vary among different exchanges. At the same time, other exchanges permit anonymous trading and some demand that users’ personal information be reviewed and approved. Vetting takes extra time, so take that into account while planning your project.
4. Choose a crypto trading bot model
If you’re following trends like Arbitrage or Market Making, ensure that you’re not putting your development at stake by picking complex trading models.
5. Bot architecture
Your crypto bot architecture will have a huge impact on its functionality and performance. When it comes to how it will operate, the core deciding elements are the algorithms that the bot uses to translate the data. Algorithmic trading has become a giant industry that is making profits in billions of dollars each passing year. The mathematical model has to be optimal as the entire algorithm is based on that. If this is compromised in a crypto trading bot, then the bot will either become unreliable or could incur losses.
Thus, to become rest assured with the algorithmic trading, first ensure clearly defining the data that the algorithm will ultimately interpret. If you want your bot to deal with more complexities, you will have to build a crypto trading bot that can analyze market inefficiencies and more data. Therefore, you will have to provide historical trends data to enable your bot to interpret future predictions. Thus, these details must be set up while you build your crypto trading bot.
6. Start creating
You can begin writing code once you’ve defined the architecture of your crypto trading bot. It goes without saying that this will take the longest. Make sure you have effective project management and communication practices in place if you have a group of developers working on various aspects of the bot.
Open a group chat on Slack or a similar app so each team member can communicate with the others. Hold weekly meetings to ensure that all team members are on the same page about the project’s status, issues that have been encountered, etc.
There are two primary goals of bot testing. Firstly, it guarantees that your bot performs efficiently and can bear any type of data fluctuations that might come in the way. Parameters like risk vs. reward and modeling faults like “overfitting” should be evaluated at this level.
Performance altering is the next part of crypto trading bot testing. Performance entirely depends upon honing the kind of behavior you want your bot to depict.
For instance, by raising the amount of risk the bot considers, you improve the likelihood of larger profits but lower the bot’s ability to react to intense price fluctuations, etc.
8. Going Live
When you resolve all the issues, you’re all set to unleash your new auto crypto trading bot. While you might have dreams of being rich overnight, keep in mind that no platform has ever been introduced to the world without first-world challenges.
An effective cryptocurrency trading bot evolves over time. You will get more out of it if you put more effort into its development. It is advised to continuously examine your bot’s performance, at least for the first few months. After that, you need to feel comfortable letting your bot do things independently with little oversight.
Tips To Remember While Building A Crypto Trading Bot
Along with the steps mentioned above, there are also a few necessary considerations you need to keep in mind while building a crypto trading platform or bot.
1. Create a sound development strategy
Your crypto trading bot development approach should address the identification of the right technology stack to use, selecting the right set of open source tools, choosing the right cloud platform, etc.
2. Comprehensive planning
Effective and comprehensive planning is the backbone of a successful project. Your project planning phase must include aspects such as management of business & non-functional needs, selecting the appropriate SDLC methodology, creating project phases, etc.
3. Find the right developers
In any software development project, selecting the appropriate personnel is crucial. In this project as well, you must do it. You can choose a reliable hiring platform. On a website for freelancing, you can employ independent developers. However, working with part-time freelancers on a project might be challenging. Freelancers might not put up enough effort for you. You could have to find replacement developers if they abandon your project in the middle.
Selecting a software development business could help you begin a complicated project. Making a cryptocurrency trading bot requires specialized knowledge. These software development companies can offer you full-time developers. If the original developer leaves the project in the middle, they also offer substitute developers.
4. Assemble your team
Along with the technical skills, the developers you hire should also have other competencies such as a problem-solving attitude, good communication, collaborative behavior, dedication to achieving project goals, etc.
Building a cryptocurrency trading bot is a challenging process. So, even if you create a reliable and efficient bot, complexities such as an unregulated market, massive price fluctuations, and security issues loom. Therefore, while building your crypto trading bot, ensure that you make wise investment decisions and offer your bot for the use of other people. This way, you could start easy and make good money simultaneously. Whatever you plan, we wish you all the luck in building your own crypto trading bot!