What is Automated Crypto Trading? Advantages and Drawbacks

2023/01/25By: L, Laura

Crypto trading can be a profitable way to make money, but it can also be time-consuming. With the market fluctuating hourly, traders must monitor their positions and make decisions quickly. What if the process could be automated? Would it be possible to set up a system to do this work for you? We will explore how automated crypto trading works, and what it means for traders.


What is Automated Crypto Trading?

As a form of algorithmic trading, automated trading involves the use of computer programs to execute trades based on predetermined criteria. This automated system eliminates the need for traders to monitor their positions or react when the market moves continuously. They can instead set up their system with specific parameters and let it run autonomously. As a result, they can focus on other aspects of their portfolio while still earning profits from trading activity.



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Automated Crypto Trading – Advantages

The main benefit of automated crypto trading is that it removes much of the emotion from trading decisions. An automated system may prove highly beneficial to traders who make reactionary decisions based on fear or greed since it removes those emotions from the equation and only executes trades based on pre-set criteria.


Automated systems can also help scalpers maximize profits by executing multiple transactions simultaneously and taking advantage of short-term price fluctuations.


Finally, automated systems can reduce risk by limiting losses if conditions during a trade session turn unfavorable.


Automated Crypto Trading – Drawbacks

Automated crypto trading has many advantages, but it also has some drawbacks that should be considered before jumping into such a strategy. First and foremost, automated systems require an upfront investment in either software or hardware, depending upon your chosen platform; if you are just starting out in cryptocurrency trading or have limited capital resources available to invest, this cost may be prohibitive.


Moreover, these systems rely heavily on accurate data feeds; if these feeds are not accurate or timely enough, your algorithm may execute trades based on faulty information, resulting in potentially large losses.


Furthermore, because these systems automate so much decision-making, they lack nuance when it comes to more complex strategies like arbitrage or hedging, which require more hands-on management than standard buy/sell orders.



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Bottom Line

As a result, automating cryptocurrency trading can be advantageous for some traders who are trying to streamline their portfolios and earn profits in volatile markets like cryptos – however, before fully committing to such an approach, some potential drawbacks should be considered, including cost issues as well as concerns about the accuracy of data feeds used by many algorithmic trading platforms.


Yet, ultimately, whether automated processes are suitable for you depends purely on your personal risk tolerance levels and your financial resources – so be sure to do your own research thoroughly before diving in head first!



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