Trading bots are kind of software or program, which place trades based upon predefined algorithms by watching the market condition. Many traders use bots in order to place their orders in the cryptocurrency market. In this article we are going to talk about trading bots in crypto market. We focus on the advantages and disadvantages of using bots and their effect on the market.
Trading Bots In Crypto Market; advantages
Trading bots not only helps and benefits individual, but also help market by bringing more liquidity. Below is some positive impact of bots in crypto market.
A more inclusive and healthier market
The bots are mostly available for institutions. In fact, most institutional traders use bots to place their orders. As a result, it brings more health for exchanges by supporting automated and high-frequency trades. In other words, these systems make the market more efficient. In the past few years, the average price deployed across exchanges have dropped significantly. The reason is the increase in high-frequency trading bot usage across the board.
More liquidity results in more institutional interest
We are all familiar with the advantages of high liquidity in the market. In a high liquid market, traders can buy and sell the assets easily, anytime, anywhere. Market makers are one of the sources of market liquidity. They place buy and sell offers across the bid-ask spread, and then make their profit from the difference. When a party using this technique, they increase their profit as well as market liquidity. As a result, it attracts bigger investors in order to expand the market.
Trading Bots In Crypto Market; Disadvantages
However, bot have benefits for the market, many believe that they can increase the manipulation. Below is one of using bots for trading disadvantage.
Bots are able to manipulate exchanges
Most of the trades on exchanges happen through bots. But the problem is that using bots simulates real trading activity. So, it looks like that an exchange is active. This known as “wash trading” or “slippage”. Although this method is illegal in traditional markets, it is still using for crypto markets due to lack of regulations. It is estimated that 95% of cryptocurrency volume on exchanges could be suspected.