How to Manage the Risks of Automated Trading

How to Manage the Risks of Automated Trading

How to Manage the Risks of Automated Trading

How to Manage the Risks of Automated Trading

More than 40 years have passed since the inception of algorithmic trading on the New York Stock Exchange (NYSE) in the 1970s. In addition, machines are capable of working around the clock and without showing any signs of emotion. 



They can also watch market data for hundreds of trading pairs on many exchanges at the same time. According to data conducted by JPMorgan, manual trading on conventional exchanges such as the NYSE accounts for just 10% of overall turnover on such exchanges. And the algorithms take care of everything else! Because most skilled traders and investment funds have their roots in conventional assets, the cryptocurrency market will almost certainly follow this path.




The great majority of individual traders, however, continue to use exchange terminals and trade manually, despite the fact that algo trading accounts for 90 percent of total turnover. Trading robots have been very costly, difficult to set up, and required the application of specialized technical expertise from the very beginning of their development. It was also necessary for them to have a dependable server infrastructure. Nonetheless, as cloud technology continues to grow in popularity, an increasing number of suppliers are beginning to provide their algorithms as a service. Simply search for “automatic crypto trading” on the internet, or visit the websites of Cryptohopper, 3commas, and TradeSanta for more information on automated crypto trading.





Users merely need to register online, set up their trading settings using a pretty user-friendly interface, and run the bot to begin using the cloud-based technology. Alternatively, they may create 100 bots. All major exchanges have the API access capability, which allows for communication between a trader’s exchange account and a cloud bot. The crypto trading bots will operate 24 hours a day, seven days a week when they have been configured. When compared to manual trading, the number of trades increases considerably, by as much as 20-50 times. Opportunities for profit may also increase.


 Isn’t it like winning the lottery?

In the real world, new chances to gain more money are often accompanied with the possibility of losing even more money. Algorithmic trading has its own set of difficulties that must be considered. Among them are the risks of a bot account being hacked and API keys being taken, incorrect bot settings, a mistake in the algorithm that causes losses rather than gains, and abrupt crypto market swings, among others. 



Traders may wind up losing their cash or taking a huge stake in a cryptocurrency with limited liquidity.




Relying on my trading history with several cryptocurrency bots and platforms, there are a few general recommendations for getting started with bots if you decide to give it a shot:



NEVER put your faith in “black box” bots that guarantee you money when you deposit your cryptocurrency into their “smart contract.” 


The real bot will only be able to function via your account on a well-known bitcoin exchange. You should be able to view all of the transactions and orders that your bot has placed. Your API credentials should not enable a bot to make withdrawals from your exchange account. Permission to trade is definitely sufficient for all typical trading techniques.


ALWAYS keep your risk under control.

 Create a new account on your exchange. By doing so, you restrict your worst-case losses to the amount that has been set aside in this account.
Begin on a tiny scale. On most exchanges, the minimum order amount is about comparable to $10 in value. To test the crypto trading bot, you just need to have 10-20 orders with a deposit amount of at least $100.

Keep it secure. 

Only trade high volume pairings from Coinmarketcap. Let’s suppose that selecting the top ten will be the best option. They have enough volatility to allow bots to perform their jobs, as well as enough liquidity to terminate your trade if you need it.
Maintain a conservative stance. Don’t attempt to capture every market fluctuation by setting low settings for bot triggers. Let’s suggest 1 percent to 5 percent should be sufficient for the majority of newbies. It follows that the market price must change by at least one percent in order for your bot to execute a single deal.

You may attempt one of the following options if your bitcoin bot purchases an excessive number of coins during the abrupt market collapse, despite all safeguards (or as a result of your failure to take them).


Make up for your loss. 

Stop your bot and sell the money manually. Pro: You will be able to use your cash for a future deal right away. Contrary to this, you will forfeit your right to recoup this particular deal.


Keep your patience.

 Most likely, the market will execute your take profit order, and the bot will complete its task properly. Pro: You still have a chance to make money from this trade. Opposite: This may never happen, the bitcoin market may sink further and never recover, and your funds may be locked as a result of an unpleasant transaction.

Launch a second bot in the “opposite direction,” 

so that it will sell coins obtained during a period of market increase. This may be regarded a middle ground between the first two possibilities. Although the bot is unlikely to sell all of your coins at a profit, it might gradually diminish your holdings.

Stop the bot, acquire additional positions in your trade, and lower the average purchase price in the process. Then attempt to sell your stake for a profit at a lower price. This is the most dangerous choice, and it is not suggested for those who do not have prior trading expertise.


Crypto hodlers, in contrast to conventional investors, do not anticipate to receive dividend payments from their holdings. As a result, automated trading may provide a chance to benefit from the volatility of the cryptocurrency market without having to make additional investments. Cloud algorithmic trading is a rising trend that began in late 2017. It may be beneficial for both bitcoin holders who stand to get more income and cryptocurrency exchanges, which stand to gain much greater liquidity and volume. But, of course, think about all of the hazards before you do it!