Developers have programmed crypto trading bots to eliminate human errors and automate every crypto investor’s trading method. These advanced programs can perform various transactions like buying, selling and trading cryptocurrencies, all of which are based on the parameters set by the user.
Nigeria has always been one of the most curious countries when it comes to cryptocurrency, as evidenced by CoinGecko’s study in 2022. Now that using bots for cryptocurrency trading is on the rise, every Nigerian should be familiar with these useful programs to aid them with their crypto investments.
In this crypto trading bot guide, we’ll take a closer look at these trading bots and understand what they are, how they work and how to use them. Let’s get started.
What is bot trading?
Bot crypto trading is the act of making trades using programmed software. This trading method provides a solution to the problems that traders face when making these types of transactions.
Some of the most common problems investors face in crypto trading include being unable to react quickly and create a solution due to the market’s volatility and not having the time to make trades 24/7. Fortunately, crypto trading bots help alleviate these problems since they can operate automatically based on the parameters.
What are crypto trading bots?
As previously stated, crypto trading bots are programs automated to perform trades depending on the specific framework laid out by the software’s programmer. This results in a much more efficient way of trading crypto since these useful tools can work around the clock as opposed to the limited capabilities of a human being.
These bots aren’t free and are usually paid regularly (monthly or annually) per function.
How do crypto trading bots work?
Crypto trading bots are developed through scripting using programming languages such as Java, C, C#, etc. Scripting is the process of providing instructions to the trading bot, such as what action it should take and how and when it should be done.
As the trader, you’re in charge of setting the parameters of these trading bots to work according to your needs and preference. These bots use Application Programming Interface (API), a software intermediary that permits two applications to talk to each other.
However, before crypto bots can make trades, they need to produce data from the exchange you’ll use. This is done by generating trading signals and computing the risk involved in the trade.
Moreover, trading bots can use APIs to analyse their user’s accounts and use machine learning algorithms to come up with the best potential trades that meet the set parameters.
Lastly, a trader must create an account and a wallet across the exchange sites where they plan to use these bots.
How to use bots for crypto trading in Nigeria?
Nowadays, several investors use trading bots to make their lives easier. As a wise trader, you need to strategise how to make the most profits out of your assets which is why you need to learn how to use crypto trading bots.
In this section, find the proper usage of crypto trading bots to help you automate your crypto transactions.
- Build experience
Before buying crypto bots, ensure you have ample experience in the crypto trading scene first. Although bots allow full trading automation, you will still be the one to give them the parameters on how they’re supposed to act.
If you don’t know how to generate income or have enough experience with crypto trading, you won’t have the right judgement when laying down the parameters. Thus, it’s better to build experience and gain industry knowledge before delving into more advanced tools like trading bots.
- Use an API
Using bots to trade crypto won’t work for your account unless you authorise them through API. As previously mentioned, APIs allow two applications to work together, and that’s exactly how it will function in this situation.
With API, these bots can communicate directly with crypto trading platforms and make trades based on your guidelines. Some guidelines you have to set with these bots include buying, selling and holding digital currencies.
- Find the best trading bot for your needs
Several crypto trading bots are available today, all of which can be used for your profit. As much as possible, you’d want to find one that will suit your needs and bring more money to your wallet. These bots often have a monthly or annual fee, so choose wisely.
Types of crypto trading bots
Many crypto bots exist today, each providing unique functionality that will benefit its users. These bots play different roles in the crypto market, and all serve to aid crypto investors with their trading needs.
Let’s take a closer look at these bots below:
Arbitrage bots
Sometimes, the price of a certain cryptocurrency in the market varies depending on the exchange site. This can be confusing and tedious at the same time since you’ll have to manually check for the price on various exchanges to find the best one. This is where Arbitrage bots come in handy.
Let’s say you’re looking to buy some Bitcoin and one particular exchange offers a lower price than the other. Arbitrage bots will automatically purchase from the site that offers the lowest price.
On the other hand, if you’re looking to sell your assets, these bots will sell them on a site that offers a higher price for that specific coin. This way, you can maximise your profits from selling your cryptocurrency.
Trend-following bots
One thing you can expect from the crypto market is that it can unexpectedly experience an upward or downward trend. You need to invest in trend-following bots since they can act accordingly depending on the trend’s direction.
For instance, if you’re holding Ether and its price increases, the trend-following bot will automatically place a buy order. But if the coin’s price drops, it will place a sell order.
Scalping bots
Scalping is a technique that investors use to capitalise on a cryptocurrency when it’s experiencing a price drop.
With scalping bots, you’re looking at a much shorter term of trading as it’s used to place bulk orders on a coin experiencing a small fluctuation in quick succession. The purpose of these bots is to generate as much profit as possible from these small price movements.
Coin lending bots
One of the ways you can earn profits from your assets is by generating interest through lending. Nowadays, this process is made easier with coin lending bots.
From the name itself, these bots can automate the tedious process of lending cryptocurrencies. Here, you must define the cryptocurrencies you’re willing to lend, the interest rate, and the due date.
Margin trading bots
If you’re looking to trade but don’t have the required capital to make an order, you can try margin trading if the exchange site allows it.
Here, you can borrow funds from the site to put yourself in a much better position in the market. What margin trading bots do is save you from the hassle of this process and automate it for your convenience.
Crypto bot trading strategies
The great thing about using bots for crypto trading is they can work as an independent program after you’ve set their parameters and conditions. From there, these bots can improve your trading experience in speed and efficiency.
However, this doesn’t mean that you should rely on the bots alone. After all, they won’t work without your command. That’s why you should also incorporate some trading bot strategies to help you make profitable decisions in the crypto market. These are the following:
Arbitrage
The idea of arbitration is simple: buy assets at a lower price and sell them for a higher one. It takes advantage of price differences and the market’s high volatility to let you gain higher profits.
This strategy requires the movement of large volumes to avoid price slippage. This task is more doable using a bot trading crypto since they’re fully automated.
Mean reversion
The idea behind mean reversion is you’re speculating that the price will revert to its average value after experiencing a significant change in its price, whether it’s a downward or upward spike. This strategy applies to the theory of buying low and selling high since you’re assuming that an asset will revert to its average level and capitalising on the extreme changes.
Machine learning
In machine learning, you allow bots to observe data and eventually adapt to them without a human intervening in the process. Trading bots can do this by classifying data into two categories: increasing and decreasing prices.
Let’s say Bitcoin experiences an upward spike for three straight days. Trading bots will adapt to this and start formulating instructions that will lead to the best trades during these occurrences.
Natural Language Processing (NLP)
National Language Processing (NLP) is an impressive advancement in technology as it allows bots to scan and react to news and other forms of media through certain keywords. Having this ability lets them evaluate the current happenings in the crypto market. In return, they can decide whether or not it’s a good idea to trade.
Momentum trading
From the name itself, this trading strategy is based on the direction of a recent trend. The theory behind the strategy is that if there’s enough momentum that drives the trend forwards or backwards, it will continue going in that direction.
Momentum trading needs to analyse the strength at which the direction of a specific asset’s price is going. Only then will a bot for cryptocurrency trading perform accordingly.
Advantages of crypto trading bots
Using a bot to trade crypto leads to benefits you can enjoy after purchasing these programs. If you can’t decide if you’ll spend your money on these bots or not, here are some of their advantages that will help you reach a decision:
It eliminates human error
As humans, you can’t help but make mistakes along the way, and that’s what crypto trading bots aim to solve. These advanced artificial intelligence tools can be programmed to perform automatically, requiring only a little human intervention.
Once programmed to execute a specific task, they’ll start running these commands themselves, free from any error that human investors would often make.
It allows you to trade around the clock
The great thing about crypto trading bots is they don’t need to sleep, rest and do other things like us humans since they’re emotionless. Instead, you can program them to perform trades continuously, 24/7.
Having this advantage can help you monitor every move in the market and expose you to better profits in the process. Additionally, you can avoid missing opportunities that could otherwise help you improve your portfolio.
There’s no limit to how many transactions they can make if you set its parameters accordingly.
It’s emotionless
As much as emotions make us human, they can sometimes be why you’re not maximising your trades. For instance, fear takes over when the price of a certain cryptocurrency seems sluggish, which can influence your trading decisions. Similarly, you can easily get carried away by happiness when experiencing success and making decisions based on joy.
With crypto trading bots, you can enjoy emotionless trading. Once it’s programmed to do something, it will continuously do so based on the predetermined rules you’ve set.
Should you use crypto trading bots?
If you’re looking for a way to improve crypto trading, you should consider using crypto trading bots. These programs can help you take advantage of the market by operating 24/7 and processing multiple gigabytes of data per second.
Sometimes, the human mind has limitations, and these bots fill those gaps. Plus, with their functionality being widely appreciated in the country, it’s safe to say that we’re going to see bots trading crypto in the future of cryptocurrencies in Nigeria.
Although these bots can take some of the weight off your shoulders, you still need to have an in-depth understanding of cryptocurrencies and how they work. For that need, you can check out some of our blogs here at Crypto in Afrika!
Crypto trading bots FAQs
Are cryptocurrency trading bots worth it?
Although they can sometimes cost a hefty fee, crypto trading bots are helpful in trading cryptocurrencies more efficiently. Having the ability to make quick decisions about the market’s volatility and trade around the clock can improve your portfolio and expose you to better profits.
However, not all crypto trading bots are effective; some aren’t designed with great quality. With this in mind, make sure to check the reviews of each bot before paying for them.
How much does a crypto bot cost?
Crypto bots are paid services, so you must pay for them regularly if you want to keep using them. Most of the time, these bots cost you around 20 to 100 USD or 9,000 to 45,000 Nigerian Naira (NGN) per function.
Which trading bot is most profitable?
Out of all the crypto trading bots, dollar cost-averaging bots pose the most profits when used. This is because it can still help you earn money even in a volatile market.
What is the best crypto trading bot?
Several crypto bots are available today, and choosing which is best for you is subjective. When choosing one, these platforms’ characteristics should be ease of use, variety of functions and affordability.
According to Forex Brokers Nigeria, these are the best trading bots in the country:
- Pionex
- KuCoin
- Bitsgap
- Crypto Hopper
- IC Markets.
Are profits earned from crypto trading bots subject to tax?
If you’re living in a country where cryptocurrencies are subject to ordinary income tax, profits made by your crypto trading bots will be taxed. However, remember that transferring cryptocurrencies from one wallet address to another won’t be taxed.
