Investors have benefited from algorithmic (‘algo’) trading programs under many different circumstances, but these ‘trading bots’ can prove particularly valuable to those interested in cryptocurrencies. Bot trading has reduced user error, enabled more rapid processing of information and given traders more time and flexibility. However, it may hold even greater potential in the crypto markets due to their immature nature. Trading bots have been around for decades, seeing growing use in stock markets as digitization has taken hold. However, the digital currency markets are less than a decade old and with far less tenure than more mature markets, have had significantly less time to integrate algo trading. Tim Enneking, chairman of cryptocurrency investment manager EAM, highlighted the differences between high-frequency trading (HFT) in traditional markets and those for cryptocurrencies. He told CoinDesk: “When it comes to use HFT for stocks, milli – and even micro – seconds matter. However, for cryptocurrencies, these very small increments of time are not nearly as important." By harnessing algo trading, investors can obtain access to a wide range of trading strategies. HFT, for example, necessitates the use of software because it involves very rapid trades. Arbitrage trading Another strategy traders can access through trading bots is arbitrage – buying assets in one market and then selling them in another for a higher price, thus earning profit on the difference. “Generally, bot trading can be profitable beyond a short period of time if it involves a sort of insightful arbitrage,” Petar Zivkovski, director of operations for leveraged bitcoin trading platform Whaleclub told CoinDesk. Further, there is more than one form of arbitrage, said Arthur Hayes, co-founder and CEO of leveraged bitcoin trading platform BitMEX , who elaborated on several other approaches. Traders can look to profit from strategies involving futures contracts, Hayes noted. For […]
