Tuesday, October 22, 2019

The volatility of cryptocurrencies and trading software

Virtual currencies are not a new thing but the launch of bitcoin back in 2009 led to the rise of a new economy based on the value of these assets. Bitcoin gave rise to a host of other cryptocurrencies whose value is volatile as the market is still nascent and the trading volume minimal to non-existent.

These properties give traders a good opportunity to trade on the volatility as well as use modern trading tools such as the trading software. These are computer programs or systems that are used to trade the cryptocurrency market based on a specified set of rules.

The main reasons to use trading software to trade cryptocurrencies are continuous trades, speed and elimination of emotion. One main difference between traditional stocks and cryptocurrencies is that for the later, markets are open all day but traders need to rest. However, the cryptocurrency market is highly volatile and this could lead traders to spend an enormous amount of time watching the market for trading opportunities. This is one place trading software is especially useful.

In terms of trading speed, unlike humans, trading software is capable of executing trade orders faster than a person can say a single word. Not only that but they can execute multiple orders in a fraction of a second. Some of the ways of using trading software include market-making and arbitrage. In cryptocurrency, speed is dare in order to perform these functions.

Whenever the value of a coin fluctuates, traders will be rushing to either close of open positions and as a market maker, you need to exit your position before the orders are filled. For arbitrage trades, the difference of prices on different cryptocurrency platforms presents a profit-making opportunity and often these differences exist only for seconds and the faster a person is to trading the easier it is to take advantage of the opportunities.

Application of Trading Software

When it comes down to it, there are just two areas of trading that trading software is applicable and that is how and when to trade.

  1. When to trade: a market can only exist in three states; rising, falling or ranging – that is when it is moving sideways. To discover the market trend, a trader can use technical, sentiment and fundamental analysis. These principles can then be programmed and set to trade on specified rules according to the trader.

  2. How to trade: there are several trading platforms for cryptocurrencies and knowing which one presents a great opportunity in terms of fees and price for each asset is cumbersome. Not just that, but sometimes, it is necessary to split trades because some order books are not deep enough for a single order. In this case, the trading software will be able to analyze and execute orders simultaneously without losing the opportunity to trade.

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The volatility of cryptocurrencies and trading software