5 Must-know Crypto Trading Bot Types

Crypto Trading Bot Types

What happens to your crypto trading strategy when you’re busy, distracted, or offline?

That’s where crypto trading bots come in. As the crypto market operates 24/7/365, traders can’t monitor market movements and execute trades effectively. Therefore, crypto investors show interest in trading with crypto trading bots.

With appropriately predefined algorithms, crypto traders can make more profit using crypto trading bots. Automation in crypto trading through bots optimizes the placement of buy and sell orders at the right intervals, resulting in better trading.

In this blog, we’ll dive deeper into the 5 must-know crypto trading bot types, the working of crypto trading bots, the benefits, and their limitations. This blog will help you to gain knowledge on how crypto trading bots influence the crypto market.

What is a Crypto Trading Bot?

Crypto Trading bots are automated software tools that perform crypto trading on behalf of human users. They are trained to analyse the market data, identify the right time for trading based on predefined strategies, and trade cryptocurrencies on behalf of the trader.

By making use of advanced algorithms, trading bots can operate 24/7, enabling traders to gain profit on crypto market movements. The trading bots are developed by leveraging predefined strategies according to the trader’s needs, resulting in automated trading when the market conditions meet the predefined rules.

Types of Crypto Trading Bots

A crypto trading bot can help you trade 24/7/365, boosting trading frequency and profit. The main types of crypto trading bots are categorized by their operation strategy. Different types of crypto trading bots are as follows.

Grid Trading Bots

Grid trading bot is an automated software that places buy-low and sell-high orders within a predetermined price range, similar to a grid trading pattern.

You might think what grid trading is.

It is a trading strategy where the trader places buy and sell orders at predetermined price levels, creating a grid pattern.

Let me explain to you with an example. If the current trading price of a bitcoin is $40000, then you will set your grid range from $38000 to $42000. At regular intervals, the buy and sell orders should be placed, keeping the grid range in mind. The grid trading bot executes trading automatically when it hits the grid range. If the trading price of Bitcoin drops to $38400, then the bot buys. If the price rises to $40600, the bot sells, resulting in profitable trading.

In the volatile crypto market, grid trading bots make money by buying low and selling high as prices move up and down.

Types of Crypto Grid Trading Bots

1. Spot Grid Bots
2. Futures Grid Bots
3. Range-Bound Bots
4. Trend-Following Bots
5. AI/Smart Bots

Key parameters you should know about the crypto grid trading bot

Grid Size: It is the number of divisions between your upper and lower price range. More grid results in a smaller profit per trade, while the number of trades increases. Fewer grids result in a large profit per trade, while the trade opportunities remain low.

Grid Spacing: It is the price gap between each grid level. Tighter spacing between the grid levels results in a smaller profit per trade and requires more capital, while the number of trades increases. Wider spacing between the grid levels results in a large profit per trade, while the trade opportunities remain low.

Capital Allocation: It is the money used by the grid trading bot for each trade. Allocating a balanced amount of funds across trades helps to protect the funds without a major loss.

Upper and Lower Price Range: Selecting a real-time price range is important to carry out grid trading. This helps the bot to carry out effective trading without potential loss.

DCA Trading Bots

DCA (Dollar-Cost-Averaging) Trading bots are automated software applications that execute trades to optimize investments by employing a layering strategy.

Timing the market is hard, DCA makes it easier.

Investors rely on DCA trading to manage volatility while accumulating or selling assets over time. DCA bots monitor market data movements and place buy orders during price drops and exit when profit targets are achieved.

Manual trading vs DCA bot trading

Manual trading requires constant market analysis and emotional discipline, and fear can cause traders to miss opportunities.

On the other side, DCA bots eliminate this issue by following predefined rules regardless of market conditions. Their reliability makes them ideal for risk-managed crypto trading, a key advantage.

Top features of crypto DCA bots

• Automated trading is executed based on market conditions without any delay in order placement.
• Automatic trade closure is achieved once the target profits are met.
• Trailing profits lock results in a gain during an upward trend.
• Automation improves capital efficiency and reduces manual errors.
• Enhanced trading achieved between multiple crypto pairs and multiple crypto exchanges.

Crypto Arbitrage Bots (Buy low, sell high)

A crypto arbitrage bot is an automated software designed for traders to engage in sophisticated arbitrage strategies in crypto trading across different crypto trading exchanges.

Crypto arbitrage bot continuously monitors the exchanges and simultaneously buys from one exchange where the price is low and sells in another exchange where the price is high.

These bots identify the price variation of cryptocurrencies on different crypto exchange platforms and execute trading to gain profits in such price discrepancies.

For successful trading, arbitrage bots should have a balance across exchanges and should execute trading at a higher speed.

Crypto arbitrage bots make advanced trading strategies easy to use for both beginners and pro traders, even without deep market knowledge.

Types of Crypto Arbitrage Bots

1. Spatial Arbitrage
2. Convergence Arbitrage
3. Cross-Exchange Arbitrage
4. Triangular Arbitrage
5. Decentralized Arbitrage
6. Statistical Arbitrage

Top Crypto Arbitrage Trading Bots

• ArbiSmart
• Pionex Arbitrage Bot
• Bitsgap
• Coinrule
• HaasOnline

See how crypto arbitrage bots work in action — request a demo

Crypto Market-Making Bots

A crypto market-making bot is an automated software program used to maintain the liquidity of the crypto market by continuously placing buy and sell orders.

Liquidity is everything in a crypto exchange. Without enough buyers and sellers on a crypto exchange platform, high liquidity is impossible.

Here comes the action of Market Making Bots. The primary function of this bot is to place buy and sell orders in the exchange. They are like the crypto market’s caretakers, ensuring a balance in buyers and sellers.

On a new crypto exchange with low trading volume, market-making bots play a key role in creating early liquidity and encouraging trades.

Types of Crypto Market-Making Bots

• Passive Market Making
• High-Frequency Trading
• Arbitrage-Based Market Making
• AI-Powered Dynamic Market Making

Role of Market-Making Bots

In the case of some less popular or new tokens in the exchange, the liquidity is not up to the mark. Crypto market-making bots play a key role in keeping the market alive and boosting the liquidity of those tokens, supporting less popular or new listings.

It is good to have a lower bid and ask spread, which helps in reducing trading costs for everyone. Market-making bots help achieve this by placing orders on both the buyer and seller book resulting in active and effective trading.

Trading without loss is essential. Automatic risk management strategies to minimize loss can be achieved through market-making bots.

Crypto Sniper Bots

A crypto sniper bot is an automated software program used for automatically buying or selling tokens at lightning speed.

Even milliseconds matter when it comes to crypto trading. Missing a token launch or the right price point can result in lost profits.

They execute trades within milliseconds by scanning specific blockchain events and executing transactions instantly.

They continuously monitor real-time market data and execute trades within milliseconds to take advantage of price discrepancies across exchanges. As crypto sniper bots are trained with advanced algorithms, they can make decisions faster than humans to buy low and sell high, generating profit for the traders.

Types of Crypto Sniper Bots

1. DEX Sniper Bots
2. Chain-Specific Snipers
3. NFT and Auction Snipers
4. Market-Making and Arbitrage Bots
5. Mempool and Order-Book Monitors
6. Meme Coin Sniper Bots
7. Solana Sniper Bots
8. Multi-Chain Sniper Bots

Common features include

• Automatic bidding on NFTs based on predefined conditions
• Continuous monitoring of price drops and price rises to react instantly, maximizing profitability.
• Diverse trading activities are achieved by managing multiple crypto wallets
• Allow traders to buy newly listed tokens early on decentralized exchanges, often at lower prices.

Other Types

Flash Loan Arbitrage Bots — They are automated crypto trading bots that take advantage of the price discrepancies across the crypto exchange using flash loans, uncollateralized cryptocurrency loans borrowed and repaid within the same blockchain transaction. These flash loans allow automated bots to borrow cryptocurrency, execute trading, and repay the loan instantly.

Coin Leading Bots — It is an automated software that focuses on lending cryptocurrencies to margin traders, resulting in the generation of passive income. They work on offering loans on exchanges that support lending, optimising interest rates, and ensuring funds are active.

Crypto Scalping Bots — They are automated software applications that execute a high frequency of small trades in a short period of time. They focus on capturing small profits repeatedly.

Copy Trading or Social Bots — They are automated crypto trading bots that mimic the trades made by another trader. Instead of building your own strategy or analysing the market movement, one can trade using these copy trading bots. Profit or loss depends on the trader that the bot is mimicking

Trend Following Bots — They are automated crypto trading software that trade crypto by following the market trend. These bots buy crypto when prices trend upward and sell when they trend downward.

Working of Crypto Trading Bots

Crypto trading bots work on a seamless flow of information between the software and the exchange.

They place continuous sell and buy orders to earn bit-ask spread. They collect market data, process it internally, and execute trades automatically.

They work based on 3 components

Trading Algorithm — It acts as the brain of the operation, executing the trading process through code. Based on predefined conditions, the trading intervals and the prices at which trades occur are executed.

API Integration — API integration acts like a bridge between the bot and the exchange. This enables the bot to read the balance and execute a trade.

Data Analysis — It is the part where the bot examines the market movement. By processing this information, the bot decides when to buy or sell crypto and at what price.

Benefits and Limitations of Crypto Trading Bots

• 24/7/365 crypto market surveillance through crypto trading bots enhances the frequency of trades, resulting in higher gains.
• Milliseconds matter in crypto trading, where bots can execute trades instantly without missing an opportunity. This proves the speed and efficiency of the crypto trading bot.
• As crypto trading bots work under fixed state of conditions, consistent performance and stable profits can be achieved.
• Managing multiple trading pairs across exchanges is an added advantage when using a crypto trading bot.
• Risk of human errors, like miscalculation or delayed response, can be minimized with the use of crypto trading bots.
• Connectivity issues or internet outages can disrupt trading, but a well-designed bot stays online to protect your positions.
• Unexpected market events, like flash crashes or regulatory updates, can impact returns.

Final Thoughts

Crypto Trading Bots have become a powerful tool for the trader who wants automation in trading to gain more profit. These bots can trade 24/7/365. With well-defined and properly configured algorithms, these bots can help human traders achieve higher profits.

In crypto trading, every millisecond counts, and trading bots can place orders instantly without missing opportunities, demonstrating their high speed and efficiency. By constantly tracking real-time market data, these bots execute trades within milliseconds to capitalize on price differences across exchanges.

Pick a leading crypto trading bot development company which focus on building different types of custom crypto trading bots designed to match your unique trading strategies.

5 Must-know Crypto Trading Bot Types was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.