Trading bots, as well as algorithmic high-frequency trading, are quite common. However, Cryptocurrency networks provide a matchless environment that will cut down the risk factor in addition to encouraging experiments with fresh methods. Aside from this, traders could even gain from market manipulation of the cryptocurrencies. The integration of additional advanced software tools would only further expand the trading bots development in the sector.
Though there is an increase in algorithmic trading in digital coin markets, it is still considered in the nascent stage only since considerable improvement and discovery is yet to spread out its wings. One of the primary reasons for it is that there is no clarity at this juncture on the cryptocurrency exchanges future besides the interoperability of distributed ledger technology (DLT) network.
However, trading bots could continue to be an important tool for institutions and traders to minimize risk so that big orders could be executed efficiently.
Significantly, several investors have focused on arbitrage trading when the overall digital currency market has witnessed a dramatic increase last year. As a result, the premium for bitcoin has reached close to 30 percent in December 2017 in South Korean exchanges compared to the American cryptocurrency exchanges.
Since there are mammoth spreads, trading bots gained traction by taking advantage of arbitrage between exchanges. Significantly, the imaginary spreads have only happened together with the general market trending of altcoins and bitcoins that have seen their prices skyrocketing. Following this, trading bots have also become more popular tools for automated trading.
The advantage for traders is that bots enable them to not only trade successfully but also monitor their positions with the help of customized parameters. This meant that there is no need to look at the screens each time. Additionally, the human emotional error aspect and the absence of monitoring of assets on several exchanges have allowed bots trading to multiply in the industry. At the same time, there is market manipulation and anomalies that continue to exist leading to discrepancies.
As a result, there is a potential to capitalize or help investors from any negative exposure. Trading bots are used for unacceptable practices too. For instance, the WSJ has spotted instances of spoofing whereas Virgil Capital disclosed that they use their own tools to fight ‘enemy’ bots. Additionally, there is direct manipulation of influential participants further complicating the digital coin market. More than 67 percent of daily trading volume across the top 130 virtual asset exchanges is regarded as wash trading.