Cryptocurrency trading has evolved rather rapidly over the past few years, setting new records along the way in terms of asset prices, trade volumes, and market capitalization among others. This growth continues today, albeit in the backdrop of unending market complexities and high volatility.
The persistence of these issues is directly related to the very nature of cryptocurrencies and their market. Unlike traditional markets, crypto never sleeps with trade going on round the clock. The market is not as strictly regulated with the majority of the action left to the free forces of demand and supply.
Trading in such an environment can be quite challenging for ordinary market participants due to the high risks and uncertainty. This has not gone unnoticed as the crypto community is working on solutions to address these challenges and to make trading virtual assets more rewarding and less stressful. Some of the existing and emergent solutions borrow proven tools from the mainstream financial markets and add a blockchain twist to fit the market.
Algorithmic trading is one of such novel solutions that is gradually changing crypto trading and promises to transform the space altogether through constant technological upgrades.
What is algorithmic trading?
Algorithmic trading refers to the automated computer programs that carry out trades in the market as determined by a specified set of rules. The algorithms are coded mathematical models and formulas that determine the appropriate time to trade an asset on an exchange.
The programs differ significantly in complexity from simple ones that are automated to buy a certain aspect every hour to sophisticated models that rely on multiple inputs and signals to execute a trade.
Benefits of algorithmic trading
Basically, algorithms are designed to determine two aspects of trading: when to trade and how to trade.
The algorithms are modelled to help them decide the appropriate time to trade by evaluating multiple technical indicators, market trends and asset fundamentals. Traders may find it extremely tedious to manually generate all these data points and make an informed decision. However, automation of the process makes it easier to know when to trade as the computer program can analyse huge volumes of data within a very short duration. By so doing, algorithmic trading ensures that crypto investors do not miss out in opportunities in the market.
The algorithms make trading more efficient by determining the appropriate terms of trading. This is particularly useful for large orders as they can break them down into smaller batches and route them through various exchanges to avoid upsetting the market dynamics. The programs define how the trades will be executed to get the best prices for the virtual assets according to the prevailing market conditions regardless of the size and time.
Algorithmic trading to empower retail investors
Traditionally, algorithmic trading has been a reserve of big market players like hedge funds and institutional investors that could afford very sophisticated models.
Now, thanks to disruptive innovation and ingenuity within the blockchain space, retail traders can access algorithmic trading tools that can help them navigate the highly risky, volatile and uncertain market.
Various projects and crypto exchanges are working on different kinds of trading algorithms with the aim of empowering retail investors.
Recently, cryptocurrency exchange, FTX has caught the attention of the crypto community with their ever-growing catalogue of sophisticated trading algorithms and bots. FTX is basically run by bots that users can deploy to trade on their behalf through the platform’s APIs. There is a wide variety of bots to choose from depending on the trader’s strategy like market making, arbitrage, smart routing, and hedging instruments.
Upbots adds an edge to FTX
The FTX algorithms have been criticised by some as quite complex and rather sophisticated for the ordinary traders. They perceive the FTX bots to be primarily designed for professional algorithmic and quantitative traders.
The exchange has therefore sought out and built a partnership with Upbots, yet another revolutionary project within the space as they seek to bring their novel solutions to the traders’ doorstep. Upbots has created much more simplistic and straightforward algorithms that are easy to use for both professional and less experienced traders.
The partnership enables Upbots users to directly connect to their FTX account by importing their keys on the platform. Once they are linked, the users will be able to deploy these simpler and user friendly bots to execute trades on their behalf depending on their strategy. Once the users get accustomed to these algorithms then they will be better placed to use the more sophisticated ones such as those built by FTX exchange.
Currently, algorithmic trading seems out of reach for most crypto traders, but nothing could be further from the truth. The tools have already been built and users are welcome to try them out and incorporate them in their trading operations. Platforms like Upbots and FTX provide an easy entry into the future of crypto trading for both professional and inexperienced traders.
