Friday, February 14, 2020

Bitcoin Trading Using Bots: An Introduction

Bitcoin Trading Using Bots: An Introduction

Bitcoin was launched back in 2009 by a pseudonymous creator called Satoshi Nakamoto. Nakamoto introduced two seemingly simple concepts – the first being a technology and the second, its application. The cryptocurrency bitcoin is based on the distributed ledger technology which has taken the world by storm.

The DLT technology promises to revolutionize every industry imaginable including medicine, finance, education, gambling, and sports among several others. So far, in the last decade, the technology has been applied to several use cases but none more dominant than the finance industry. This is expected since Bitcoin was clearly designed to disrupt this particular industry.

The DLT aside, bitcoin as a cryptocurrency has had several applications on itself. The cryptocurrency has exhibited similar properties to physical gold making most investors more predisposed to using bitcoin for value preservation or storage.

As opposed to the fiat currencies, bitcoin has negative inflation (or deflation) which means its value has been increasing rather than dropping over the last decade of its existence. Bitcoin also exhibits other properties that make it an appropriate alternative to fiat currencies such as a medium of exchange, easily divisible, scarce and highly portable.

In this guide, we will focus on another application of bitcoin that is gaining traction faster than most others, and that is trading bitcoin. Similar to traditional currencies, bitcoin also rises and falls in value which presents a great opportunity for traders to bet on the possibility of the cryptocurrency either rising or falling.

The nature of bitcoin and other related cryptocurrencies also make bitcoin a great asset to trade, chief among them is that bitcoin is highly volatile. To effective and probably trade bitcoin, however, you will need to automate your activities to ensure that you make the most of your time and resources.

Why automate Bitcoin Trading?

There are several reasons to automate your bitcoin trading activities. Here are some of them:

Markets don’t close – bitcoin as an asset class is live for trading all day and night. Therefore to trade the coin, it is highly inefficient to do it manually since no human can trade all day and night. Humans need rest and social life outside their daily activities. To make sure that they don’t miss out on any trading opportunities, traders automate the process and use what is called trading bots or software. We will talk about these pieces of software to greater length in this article.

Global markets – bitcoin is not a local phenomenon meaning that traders can interact with the global market when trading the cryptocurrency. The advantage of trading in a global market is that the opportunities for making a profit are endless. A trader could engage in arbitrage trading to market-making while taking note of profitable markets across the world. The challenge of doing this is that it is an arduous task to handle manually. You just have to automate the processes of scouring the markets for opportunities to trade.

Bitcoin is highly volatile – bitcoin price action is highly volatile making it easy to make and lose money all on the same day. Speed and precision of trades matter in such circumstances and doing that manually when the market is either falling or rising is highly inefficient. Making an error when placing a high stakes order could mean a huge loss to the trader.

Multiple assets – we may be focusing our discussion on bitcoin, however, it is important to remember that there are several digital assets to trade other than bitcoin such as Ethereum, Tron, Bitcoin Cash, Litecoin, Stellar and the rest.

Actually, there are more than 2,000 cryptocurrencies listed on the industry data aggregator Coinmarketcap all offering an opportunity to trade. It is impossible to keep track of all these markets at the same time or simultaneously, place orders to profit from trading opportunities. However, using bots, you can do all that and much more.

The Function of Trading Bots

Bots are pieces of software that can be used to automate any task including trading bitcoin. They can undertake a variety of tasks in varying conditions. Here are some of the ways they can be used in bitcoin trading:

Placing orders on exchanges – this is perhaps the most common function of a trading bot. Depending on the user’s settings and trading parameters (also called trading strategy), trading bots can open and close trades to take either make a profit or protect gains. The user needs to provide API permission for the bot to access the trading platform in order to undertake these commands automatically.

Withdraw and deposit balances – another common function of bots that allows these programs to either deposit funds into an account or withdraw to another platform or wallet. For security reasons, however, some traders prefer not to give bots permission to withdraw funds, an action that is highly recommended.

Data collection – information, as they say, is power and having the right kind will ensure that a trader makes the best decisions when choosing what opportunities to chase. When using bots to trades, a trader has to define trading strategies which means that for a signal to qualify as a trading opportunity, it has to fulfill some parameters.

The bot will need to scour the entire cryptocurrency market to collect the right data on which pairs to trade, at what time and how much capital to invest in each trade. In the same way, the bot will need to exit the market to retain as much profit as possible.

Precautions when using Bots to trade Bitcoin

The cryptocurrency market is filled with scams and dishonest people out to steal and defraud others. Using bots made it even easier since bots are software that can be attacked in order to steal funds and permissions to exchange accounts. Bots have also evolved from the traditional bots that offer predictable services such as opening and closing positions. Now there are others that employ what is known as social trading through brokers and other “more experienced” traders.

Basically what these more recent bots do is offer traders an interface to watch other skilled traders and choose to copy their trades or give these traders capital funds in order to open bigger positions and possibly make larger gains which they then share with the pool participants. It is not entirely correct to call these schemes as trading bots but often they are promoted as bots.

These are more accurately referred to as investment programs. One such program is the Bitcoin Code software. It is hard to write an unbiased Bitcoin Code review given the amount of controversy surrounding this particular trading bot. basically, the bot is designed to fully automate your trading, requiring investors to deposit minimum funds and letting the ‘brokers’ affiliated to the bot to use the funds to invest in profitable opportunities.


Using bots to trade bitcoin is one of the best ways to take advantage of the highly lucrative bitcoin market. Bots are more precise, accurate and implement trades with the speed that is necessary to profit from sudden market movements. If you will need to trade, this is an area you will have to master and it starts with getting the right information. Consider this guide a prime to learning more about trading bots.

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