Many are not familiar with algorithmic crypto trading, but the sound of it might be appealing. Is this a type of automated cryptocurrency trading? Learn more below and discover the top sites providing algorithmic crypto trading.
Algorithmic Trading — A Beginner’s Guide
The cryptocurrency market is one of the world’s fastest-growing sectors, with a daily trading volume of over 8 billion dollars. Most of this volume can be attributed to the cryptocurrency trading platforms that promote crypto transactions. Many algorithmic trading sites such as eToro are becoming highly popular among these popular trading platforms. In our beginner’s guide, you will learn about what matters with algorithmic crypto trading from start until selecting your broker or exchange.
What is Algorithmic Trading?
Algorithmic trading uses computer programs to trade on a stock exchange, crypto or other financial markets. Hedge funds, mutual funds and other large investment firms often use these algorithms. Also, individual traders and investors with resources can set up a computer system to monitor market activity and execute trades automatically.
Algorithmic trading can help traders make money in volatile markets where prices move quickly. It can also help them avoid losses when markets are moving too quickly for humans to react effectively.
Many people think Algo Trading is all about high-frequency trading (HFT). This refers to investors making thousands of trades per day at speeds that are much faster than those used by ordinary investors. However, individual investors can also use Algos. They enable investors to make automatic trades without paying a commission.
How does Algo Trading work?
Algorithmic trading involves pre-programmed software to carry out a defined set of instructions. This usually involves minimal human intervention. The idea is that computers can make trades faster and more efficiently than humans. Thus, it has led to a proliferation of algorithmic trading platforms.
The process starts with identifying a suitable strategy and an asset to trade it on. The trader then creates a computer model which implements this strategy. Most traders then test it using historical data before deploying the system into live trading. Afterwards, it’s sent to the algorithmic crypto trader and executed immediately.
Is trading robots the same as Algo Trading?
Yes. Trading robots are similar to algorithmic trading. Algorithmic trading is a form of computerized trading that uses pre-programmed software to analyse market data and make instantaneous decisions.
Crypto trading with robots involves programs programmed to buy and sell stocks based on price changes or volume changes. Day traders use robot trading to make money from short-term fluctuations in stock prices. They’ll buy low and sell high within minutes or hours, rather than over weeks or months as traditional investors do.
Advantages and opportunities with Algo Trading
The advantages of algorithmic trading include:
What kills many traders dreams are emotions. When the market turns quickly, you might exit the position instead of waiting for the crypto market to turn back again.
One of the most significant advantages of algorithmic trading is the ability to speed up your money management process. By automating your operations, you can save yourself time and get results faster.
Algorithms will execute trades precisely as they were programmed, while humans may make mistakes or have emotional responses that affect their decisions.
You can usually fill an order faster with an algorithm than manually placing it yourself. This is because algorithms are faster than humans at processing information and completing tasks, such as placing trades.
Better price execution
An algorithm ensures that you fill your trade at the best possible price. This is by placing it when there is little or no competition from other traders looking for prices that are better than what is currently available in the marketplace.
Algorithmic trading allows you to use less capital than other trading strategies. This is because you’re not using human labour costs or paying commissions on each trade made through your account (which would be charged regardless of whether they were profitable).
Disadvantages and risks with Algo Trading?
Below is a list of some disadvantages and risks associated with Algo Trading:
Knowledge of programming language
Algorithmic trading requires a higher knowledge of computer programming languages than traditional trading. Furthermore, it is necessary to understand how these algorithms work and what they are designed to do. It would help if you coded the algorithms in a specific language.
Some regulatory hurdles still need to be overcome before algorithmic trading becomes mainstream. Regulatory bodies have yet to take full advantage of the potential offered by algorithmic trading, but they will do so shortly.
Algorithmic trading systems may only last for a short period before they become obsolete, or their performance begins to deteriorate due to changes in market conditions or new regulations which affect them.
This is when an individual or firm uses knowledge about pending orders from other traders to profit from those orders without executing the trade itself. This can lead to unfair pricing for all customers who use these exchanges and can hurt the overall market’s efficiency.
The requirement for resources
Algorithmic trading may requires many resources, including computing power, data storage and processing capabilities. These requirements can be costly for smaller traders to meet.
There are some important factors to consider when investing algorithmically:
Check whether the platform is 100% automated or semi-automated. A 100% automated platform means you don’t have to do anything at all—the venue will do everything for you, like eToro’s copy trading.
How much should you invest?
A good start is with a small investment of a few hundred dollars. This will help you familiarize yourself with the system and see what results in it can generate. As you gain more experience, you’ll want to move on to more significant investments.
Which assets are included?
The trader should consider the assets that the trading platform includes. Ideally, you’ll want to invest in crypto, stock indices, and forex. However, if your goal is to make money quickly, you’ll likely have better luck using the latter two options.
How much does it cost?
Consider the cost of your investment before you start. For example, on eToro, you can copy trade for free. However, there is a charge if you want to trade on your account. Examples of this include buying and selling stocks and currencies. There is also a $5 charge on all withdrawals.
When is the best time to trade crypto algorithmically?
Trade when the robot has identified a good opportunity. Your robot will only enter the market when it identifies an excellent opportunity for profit.
Is it legal with algorithmic crypto trading?
Yes. Algorithmic crypto trading is legal in most countries. However, a few exceptions exist, including North Korea and Iran, which have banned the practice. Some countries restrict how much money individuals can invest in foreign markets or currencies.
Which are the top 3 Algo Trading platforms?
Below are popular picks for Algo Trading platforms available:
eToro is one of the most popular algorithmic trading platforms, and it’s easy to see why. It’s got a spotless interface and is easy to use, even for beginners. You can copy traders and follow their trades in real-time or make your trades on the platform. It’s never been easier than with eToro to get started with algorithmic cryptocurrency trading in 5 minutes. Sign-up here to get started!
This is another popular choice among algorithmic traders. It’s similar to eToro because it offers automated and manual trading options. Still, it has a few different features that set it apart from eToro—namely, the ability to set stop loss orders and take profits based on specific parameters specified by the user. In order to use MetaTrader, you need a crypto site that have it. Our best recommendation for crypto algo trading with MT4 is with AvaTrade (see review). They make it simple and have been around for 15+ years. Try AvaTrade today!
This is a robust platform that offers many features for all levels of traders, from novices to experts. It has an intuitive interface that makes it easy to use even if you’re new to algorithmic trading. The negative is that you need to know C++ in order to get started. Give Zorro trader a try here.
Algorithmic trading platforms can be handy tools for a trader. However, it would help if you had a well-defined investment strategy before committing to this trading method. Once this is clear, the software will work for you, ensuring that all trades will be completed at the right price and time.