Making Money on Downward Crypto Market: Trading Bots

What I really love about capitalism is that there are myriads of strategies how to make money out of nothing.

The proposition might seem leftist though I am quite far from abandoning the benefits of free trade and private property. What I am saying is that by a number of scrupulous and well-designed tactics various institutions and individual traders unleash the potential of capitalism and increase the money supply (all these M0, M1 etc.), literally making money from nothing — one might have seen the consequences of it in The Big Short.

For most of us, a common sense dictates that there’s no way to make money on a downward market. In particular, the cryptocurrency market is increasingly taking a downtrend in recent months, and it makes horrified so many traders. There are several strategies on how to make money in a falling cryptocurrency market.

The best strategy ever (according to me)

Short selling. This is obviously the favorite strategy of all bears. The classical scheme of this trade model is as follows:

  1. A trader borrows coins/tokens.
  2. Sells them on the market at the actual price.
  3. Waiting for the price to fall.
  4. Buys the same amount of coins, but at a lower price.
  5. Returns debt.

The difference in price after the fall and before will be the profit of the trader. Let’s give a small example. Suppose you borrow an amount of XRP that costs $1,000 now. You sell it at this price, and then when the value of Ripple has dropped to $900, you buy the same amount again and return it. So you earn 100 dollars.

Besides making a huge short, one may also pay attention to various crypto derivatives — here’s a great article about them. The title of this article says about trading bots. So, consequently, I would like to cover how these pieces of the code can save and augment the money you’ve saved on your secondary school lunches.

You will beg for mercy, leather bastard

Unlike the traditional markets, the cryptocurrency market never sleeps, which can be a really stressful thing for traders. You don’t wanna find yourself waking up at 4 am and scrolling down Coinmarketcap to find a fantastic loss. This is the reason trading bots have become popular among traders allowing them to remain in control their trading all times.

As said, a trading bot is essentially a piece of code that interacts directly with exchanges through API and places buy and sell orders on your behalf based on a prescribed strategy. The bot gathers valuable information from the market (y’ll know that the price reflects all available information, huh?), typically, it’s volume, orders, price, and time. It’s faster and for many times more accurate than a human trader.

For many years trading bots were used in traditional markets, however, they are not that cheap — a famous Bloomberg terminal may cost $10,000. In the emerging cryptomarket, we see that bot developers tend to use a low-fee subscription model, possibly related to a great desire to get a significant market share. So, let’s suppose that crypto trading bot providers all dump the price. How damn one can compare trading bots then?

A humble endeavor to make a framework for comparison

Easy there. I got something for you.

Let’s have some obvious considerations. First of all, one can make money trading on one market at a given time, or trading in different markets simultaneously. That essentially leads us to two common types of trading bots: arbitrage bots and market making bots.

The first type utilizes the difference in prices on several exchanges thus making the profit on buying cheap at one and selling with premium at another one. It somehow resembles HFT-trading at options market. With a decreasing level of asymmetry of information, this type becomes more and more useless. Another story is the second type: the strategy is to buy and sell continuously in an effort to “capture the spread between the buy and sell price” through analysis of the order book (I love the metaphor of “glass” in the Russian language).

This is in a way too abstract. How can one make a decision on which bot to choose?

I’ve decided to put together several points of comparison: subscription price, the range of tools, available exchanges, languages supported, years in business, incorporation, social media activity. I think it might be extremely important to actually test a pre-ordered list of bots, and this job will be done quite soon, but this idea lays beyond the scope of my blog (let it be a kind of mystery for that time).

For the purpose of this article, I have chosen 3 crypto trading bots (based on Google search engine results) and tried to dissect them with the above-described framework. Here’s what I get:

It’s by no means any sort of advertising nor I’ve been paid to make this short overview. The content is for informational purposes only, one should not construe any such information or other material as investment, financial, or other advice. Make your own choice and trade profitably!


The opinion of the author may not coincide with his point of view.

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