Crypto Bot Guide

In Part 1 of this series, we reviewed the concept of crypto arbitrage. In this article, however, we introduce the concept of arbitrage bots, explain how to create them, evaluate some, and review advantages and disadvantages to integrating bots into your trading.

? What is an Arbitrage Bot

Without a bot, you have to sit in front of your computer monitoring the market for a buy or sell signal based on your trading strategy. When you’re removed from your computer, however, you are unable to profit. Creating and utilising an arbitrage bot scales this process by leveraging technology as opposed to human capital to monitor the market and provide buy or sell signals for you.

? How To Create an Arbitrage Bot 

1️⃣ Download from open source. If you have little to no technical knowledge or experience with computer programming, the cheapest and simplest way to create a bot is to find an open source bot online to download and install. The downside is that you’ll be unable to customise the bot to your trading strategy or rectify any security issues, you’d need a software developer to do this for you. For example, if the bot you download signals a buy everytime RSI crosses below 30, but data from your trading suggests that a better buy signal is when RSI crosses below 20, you won’t be able to program this in without a technical partner.

2️⃣ Build it from scratch. If you have technical experience, or are willing to hire a software developer, your best bet is to build your own crypto trading bot. This will enable you to fully customise your bot to fit your trading needs and continue modifying it as you gather more trading data and test new strategies. Most basic trading bots can be programmed in just a few weeks. More sophisticated bots that can work with multiple data sets simultaneously, prevent security flaws, and trade on multiple exchanges, however, will likely take more time. Most bots are programmed in C++ and Python.

? Popular Crypto Arbitrage Bots 

Here are a few trading bots you can look into if you’d like to get more involved. We are NOT sponsored nor being financially compensated for anything mentioned below. Do your own research.

• BlackBird. A fully open source and freely downloadable bot. Setting up Blackbird, however, does require technical knowledge in C++.
• CryptoHopper. A premium, paid arbitrage bot that allows you to gather data and backtest strategies and set up market making opportunities to take advantage of more advanced arbitrage.
• Zenbot. Another open source trading bot that is helpful for people who would rather interface with the command line rather than Python or C++.

? Advantages of Arbitrage Bots

✅ 24/7 Monitoring. As we mentioned before, bots are awake even when you’re not.

✅ Affordable and Fast. Basic bots are relatively inexpensive and easy and quick to set up even with little technical knowledge.

✅ Unemotional. As traders we often fall prey to emotions like fear and greed. A crypto bot has no emotion and will execute a buy or sell strictly based on previous data.

? Disadvantages of Arbitrage Bots

❌ Strategies Can Change. Bots execute trades based on an initial algorithm. This algorithm will not change even if a strategy stops working: a bot’s job is NOT to trade profitably but rather to execute a set of actions per a list of predetermined functions. If your strategy stops working, you need to amend or dispose of the bot.

❌ No Discretion. Given that bots are unemotional, this mimics the process of a systematic trader. If your trading style is more discretionary, it may take more backtesting and experience to see which bot is right for you.

❌ Scams. There are, of course, bots that can make your trading more profitable. However in the crypto industry it’s important to be able to filter out true bots and bots from scam artists.

? Our Recommendation

1. Backtest Data. Make sure that you have backtested data available for a considerable amount of time before relying on it. Just a few months of data is not enough.
2. Consider Context. Furthermore, make sure that the bot you are using works in the context of the market conditions you are trading. One bot’s strategy, for example, may work well in trending markets but stop working during periods of consolidation.
3. Assess Fees. You should also consider how much you’re paying for the bot, including the initial fee, any subscription services, and software developer fees to customise your bot and upgrade security if need be. We’re not saying it is unwise to spend money on improving your trading, but understanding your costs prior is essential. For example, are the fees equal or more than the fees you could pay to a fund to manage your investment for you.