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This article was published on November 27, 2018

Crypto trading bots are a thing these days – but can they actually earn you money?

Let's look at some pros and cons

Crypto trading bots are a thing these days – but can they actually earn you money?

Investing in cryptocurrencies isn’t easy because there is always the risk of losing money, especially when you don’t have a deep understanding of the market. Actually, even seasoned traders will lose money on some trades because it is really hard to make money all the time. For example, Wall Street legend Warren Buffet lost about $23 billion in the financial crisis of 2008.

In other words, humans aren’t infallible when it comes to trading. It’s becoming quite popular these days for people to invest money into trading bots, but how feasible is this strategy?

First, let’s take a look at some of the advantages of having a cryptocurrency bot.

24/7 availability

While regular stock markets are only open during the daytime, the cryptocurrency market is open all day, every day. This means that with a bot, you can continue trading well into your sleeping or working hours. It’s important to note that while the bot can cause you to make money, it can also cause you to lose money depending on the strategy you employ.

Not dealing with emotions

Trading can cause a lot of emotional highs and lows that might sometimes interfere with your success. For example, fear caused by bad news may cause one to impulsively sell at a loss rather than hold onto it for longer until the markets recover.

Alternatively, greed in combination with the fear of missing out may cause one to invest a lot in just one coin or token. Even your grandmother knows not to put all her eggs in one basket no matter how amazing the basket looks — so you probably shouldn’t put all your money on Bitcoin, or whatever flashy coin is popular right now.

Saves you time

Trading can get repetitive with all its price checking and button pressing. A bot can do all that for you with fewer clicks. You can give your bot some instructions before you sleep and find that a few good trades have been executed when you wake up.

So far so good? Sadly, as with anything, cryptocurrency bots also have downsides.

Paradox of choice

There are quite a few cryptocurrency bots out there and finding the right one may take you some time. We’re probably talking putting in the same amount of emotional and mental labor as you would when buying you’re next phone or laptop. In addition, as with all things crypto, there is a possibility that the bot you’re looking at may be a scam.

Bots vary widely in terms of usage costs or fees. Some like Gekko and Gimmer (still in beta) are free to use, but might not offer the level of sophistication you need for your investment strategy. Others like Haasbot and Cryptotrader would be more advanced but require a subscription to use.

Heavy maintenance

Since the market changes all the time, your instructions to the bot should change continuously. This means that you should continue to update and maintain your bot to make sure that it’s making the right choices that you want.

Strategy limitations

Cryptocurrency bots cannot factor in fundamental analysis, breaking news, insider knowledge and the myriad of other factors that make markets move. In short, strategies on offer could be fairly simplistic. For example, the bot could just be performing arbitrage.

Arbitrage is simultaneously buying different cryptocurrencies on different exchanges to take advantage of differing prices for the same asset. So the bot may buy you some ether at a low price and sell it back at a higher price at another exchange automatically. However, the typical profit margin for this seems to be around less than one percent per day.

While arbitrage is profitable, one may question whether this is really the best strategy to maximize profits. For example, would you better off if you can make a two percent return on $1000 but you have to manage the investments yourself? Instead of only making less than $10 a day, you could be making $20.

If you factor in the price you pay for using the bot, your net profits for trading may not amount to that much. Haasonline, for example, charges 0.28 BTC (around $175) for three months so you need to consider the maths.

Right, so it takes ages to pick one that would work for you and it does need some maintenance. All of this would be worth it if they made you a lot of money, right?

In an ideal world, if you know what you’re doing and have configured your bot to the right strategy, then you will make a profit. However, bots also vary in quality and a hiccup somewhere along the process could generate disappointing results. Case in point: This guy tried out a free bot and only lost money in the experiment.

Alternatively, you might want to consider another option that combines human expertise with automated convenience. eToro has a tool called CopyTrader that lets you automatically copy the exact trades that other traders make. This means that fundamental analysis, breaking news and insider knowledge, are all factored into the trades even if they are happening automatically. 

The key here is transparency as you can see public trader profiles with their trading history, success/fail ratio, and gain and portfolio composition to help you choose who to copy. eToro also gives each trader a risk score of 1-10 based on their willingness to take risks to help match you with the right risk profile. A bit like a trading bot, but with a human trader making the decisions.

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