We are increasingly convinced that Cryptocurrency, so far, is the greatest invention to emerge from the foundations of the digital world. And although it really owes its existence to the appearance of the Blockchain technology; The fact is that cryptocurrency trading has proliferated in a gigantic way and is constantly evolving. Thus, both traders and investors are concerned with unraveling the secrets of the market to develop their strategies; even today they are very interested in discovering how the crypto arbitrage bot works.
We would not be surprised if this is the case, if so, you are in luck because we will reel off valuable information about what the crypto arbitrage bot is, how it works and much more. Are you ready? J
What is a Crypto Arbitrage Bot?
Crypto arbitrage bots are a set of instructions that execute operations without the intervention of people.
Therefore, if a trader creates a strategy with which he can generate profits quickly, he will no longer have to spend hours on his computer to perform the same operation because he will be able to use a bot that will do the whole process in an automated way.
But Are these bots really trustworthy? They are said to have the ability to make thousands of decisions, all aimed at obtaining positive results. The human brain, for its part, has a much more limited capacity compared to these robots, whose decisions will not be influenced by hunches or emotions.
The truth is that they are able to execute the same strategy consistently for a long period of time. However, to achieve the expected results, it is necessary to know how the crypto arbitrage bot works and how they intervene in the strategy development process.
Strategy and crypto bot design
The trader must first define a trading strategy and have good risk management - reward and solid money management.
First, you have to choose the cryptocurrencies that the bot will operate with in order to minimize risk. In addition, it is important to bear in mind that when there is high volatility in the number of operations of a certain cryptocurrency, the investment must be less to ensure that the uncertainty of the market does not ruin the investments.
To understand how the crypto arbitrage bot works And take advantage of strategies, there are some basic steps that must be followed in order to ensure that automation is profitable.
Design the bot:
- Collect price information using exchange APIs and price aggregators.
- Study and detect the data that you can take advantage of and get better arbitrage opportunities.
- Automate the strategy to reduce the entry and exit times of the negotiation.
- You also have to add as many trades and pairs as possible to increase the variance.
Minimize risks:
- Reduce trading and transfer fees to ensure that the price differential will generate profit.
- Check if the liquidity will be high enough for the size of your transaction with the cryptocurrency you have chosen.
- When trading, check the network fees and the transaction time of the cryptocurrency.
- Some exchanges will have withdrawal rates that are higher than the actual network fees. This market behavior generally requires more confirmations than most wallets.
- There is the possibility of making many mistakes during data collection, something that could lead to large losses, especially when the entire process is automated.
¿CHow does the crypto arbitrage bot work?
A study by the University of Calgary (Alberta, Canada) has highlighted the possible arbitrage opportunities in Bitcoin transactions within the Korean market, which provided an average gain of 4% between 2016 and 2018.
The analysis ranks two main causes for obtaining this result: capital controls and wear and tear caused by the Bitcoin network (speed and transaction costs).
According to the researchers once it is already known how the crypto arbitrage bot works, this type of arbitration may be easier to take advantage of.
Although they stated that it all comes down to knowing the underlying details of the country's financial system. Therefore, there is no universal manual that guarantees success with this method, but it is worth investigating if you want to exploit arbitrage bots.
Identify market inefficiencies
Maybe you understand how the crypto arbitrage bot works, but it must be clear that the perfect trading strategy does not exist. So far there is no strategy that always generates large returns to investors.
However, the trader can configure the bot with the best information on the market, an action that, without a doubt, will bring the best results in the execution of operations.
Finally, don't spend a lot of time manually searching for multiple exchanges and currency pairs. This will take forever and you won't be able to find them fast enough to work, so you will need an additional set of criteria and heuristics (search method).
Conclusions
With this article on how the crypto arbitrage bot works We have been able to discover that the strategy of automating operations can be quite effective for investors, as long as the risks are minimized to the maximum. But, for this, it is important to fully know the economic situation of the country and identify the strengths and weaknesses of the market for the currency you chose.
