Saturday, October 26, 2021

Cryptocurrency trading software: Risks and Challenges

One defining characteristic of the virtual asset class or market is the price and value volatility. Prices of cryptocurrency are prone to swing from either side to the other in percentage ranges of as much as 20% in less than 24 hours.

For long term investors (or what the industry calls hodlers), this is not an ideal opportunity to make profits, however, these conditions are the bread and butter of traders. These include the day traders, swing traders, scalpers, and people frequently in and out of positions. The other feature of crypto markets is potential perpetuity. This means that markets never close.

Both of these features make crypto markets unique and challenging to trade in and make consistent profits bearing in mind that human is certain limitations i.e., we get tired and we let our emotions get in the way of our decisions. To solve this problem, traders came up with a solution to use trading software. Contrary to most people’s beliefs, trading software is not another human that can make decisions on their own and make them wealthy without constructive input from the trader. These programs are basically an extension of the trader. Think of them as tools or instruments.

Crypto trading software solves the two problems discussed above and provides some more perks too but not without a cost. There are risks and challenges to running a crypto trading bot. some of these risks have been borne out of the fact that these bots have become extremely popular in the cryptocurrency trading accounting for a significant portion of the daily trading volume. So here are some of them:

Scams - most of the traders that are in cryptocurrency are inexperienced either in trading or in the technology but they all desire to become rich by taking advantage of the volatile nature of the cryptocurrency market. The solution to their inexperience is to get a bot and feed it some commands and wait to receive returns but this presents a great opportunity for rogue developers to steal user funds. These developers could develop and market trading bots that collect API keys which the developers use to steal user funds. This is just one angle that rogue software creators can use but there are several ways in which to dupe unsuspecting traders into stealing their crypto.

Faulty or buggy software - it is normal for software to have bugs but the developers need to reduce these bugs as much as possible in order to ensure that the users of their software do not suffer any loses due to the ineffectiveness of their systems. However, not all developers take the extra precaution to correct all buggy code and therefore ship their software to clients without the precaution which could lead to losses for the users.

System failures - more often than not, crypto trading platforms upgrade their systems frequently to ensure the trading experiences for their users are better than their competitors. While this may be a good thing, it also means changing some aspects of the platform such as the API through which the bots access the platform data and if this changes without changing the underlying codebase that makes use of the former API parameters, users of the bot could experience bot failures and potentially losses as their orders may fail to execute.

In summary, there are challenges to almost anything but the best way to profit from any endeavor is to reduce the risks and challenges while also increasing and maximizing your profits and trading the cryptocurrency market is not any different.

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Cryptocurrency trading software: Risks and Challenges