Despite the staggering amount of daily trading activity, none of the major players in this industry has managed to achieve a 100% automated end-to-end process. The unique features that make cryptocurrencies a compelling asset class make them so tricky to trade. There is no central exchange where one can buy and sell in real time. Distribution channels are fragmented. As with most other asset classes, the entry and exit points for crypto trades are not standardized. If you decide to invest in crypto, you may have to click this link for more reviews about it.
And while crypto is quickly maturing to offer more traditional tools like stop loss orders, margin, and leverage trading, there are still many obstacles preventing it from reaching its full potential as an industry standard product akin to oil or natural gas.
At the same time, it is becoming clear that automated technology will play an increasingly vital role in the future of crypto trading. There’s an enormous opportunity to streamline the entire trading process using intelligent order routing and fully automated execution services, which provide a ‘plug-and-play’ interface to a broader ecosystem and thereby make it easier for traders to gain exposure.
But this trend alone cannot lead to mass adoption of cryptocurrency by non-professional traders. For cryptocurrency to be successful and become a central pillar of global financial markets, it must be accessible, understandable, and safe. It is one of the primary reasons why institutional investors, who might have an easier time adjusting to this kind of trading pressure, have had massive success trading cryptocurrencies. So let’s see how automated trading is skyrocketing the accessibility of a cryptocurrency.
What is automated trading in cryptocurrency?
Automated trading is an algorithmic process that executes pre-programmed instructions for a set of transactions. It does this in the face of ever-changing market conditions, which means that its performance relies on real-time data analysis and market signals to make adjustments. In crypto land, automated trading has several key benefits.
First, it simplifies the order routing and execution process by removing human involvement from the equation. Second, it provides traders access to a broader ecosystem of tools and solutions, such as risk management tools, advanced order types, and trade algorithms integrated into one interface. Third, it can improve the analytical quality of traders by implementing a hybrid model that blends traditional rules-based and automated systems to produce more precise results.
What are the benefits of automation?
The benefits of automation are manifold and extend far beyond the scope of this article. Here are just a few:
Longer time horizons – Traders who have previously been unable to trade crypto due to lack of access or dislike the volatility can now enjoy a broader range of trading strategies with more time to analyze end-game outcomes. It also allows for more sophisticated risk management/portfolio management strategies, as traders can integrate automated trading into their existing portfolios without additional costs.
Reduced market impact – Traders can now make transactions independent of the current price action and time. It means that traders need no longer be exposed to market volatility, which can add unwanted pressure resulting in more frequent mistakes. Moreover, it reduces pressure on traders from market volatility and the other side: human bias.
Increased profitability – Automated trading allows end users to identify and trade with a widely undervalued or overvalued token relative to its fundamental utility versus trading with crypto when it is at its peak value. It provides a significant opportunity for higher profit margins due to lower transaction costs and access to tokens that have more significant potential for gains in the future.
Downsides of automatic trading:
The overall benefits of automation are mainly in the eye of the beholder. Automated trading comes with certain disadvantages and barriers that cryptocurrency exchanges must overcome to offer this solution to their users (we will have a lot more to say on this later). Undoubtedly, the ease of access and increased liquidity provided by automated trading is unprecedented, but so are the risks.
Accessibility – Most crypto traders will not have access to an automated trading environment at all, let alone any infrastructure necessary to support it. Most crypto exchanges rely on centralized exchange models, which provide no direct access to exchange trading tools. It means that non-professional traders are at odds with the benefits of automation. For example, Block folio, a popular crypto portfolio tracker, does not have an API for automated trading, so it is impossible for an automated trader to use this tool.
Inconvenience – Most exchanges in the crypto space do not have any API or automated tools that would make it possible for a trader to access such tools through a single interface or integrate with any existing systems (not even manually). To utilize automatic or semi-automatic trading strategies, you must create multiple accounts on multiple exchanges. Not only is this inconvenient, but it can also introduce significant additional risks.