Many people wonder what a trading bot is. Long story short, it is software that performs automated trading and investment research.
Below, we explain everything you need to know about these computer systems that help investors in their next trading operations.
What Are Trading Bots?
Trading bots are programs created to define actions for buying and selling assets. It is a digital system that scans the activity and movement of an investment platform to suggest trades and perform actions in an automated manner.
They have been created to ensure a flow of trading activities, even when an investor is not connected or trading. This ensures mobility in the market. These bots send notifications, perform pre-configured actions, and monitor the markets.
For example, an OKX trading bot creates and follows financial processes in real-time. It invests in the stock market if it has been configured that way or does market research. Any kind of change, modification, or action that arises will be notified by the bot.
The interesting thing about these computer assistants is that they always remain active. While a trading platform is operational only when the investor is connected, trading bots work in any time zone as long as they have been configured that way.
Plus, thanks to their predictive values and automatic settings, they allow you to see investment results in the short term.
How Do Trading Bots Work?
Their operation is relatively simple. What this system seeks to do is to install a sort of ad-on on an exchange platform.
With this, you will be able to carry out studies and automate trading operations. They operate with lines of code in a programming language. These codes analyze:
- Buys and sells following the average market value of a stock.
- Always attempts to open a buy position, in a similar way as a broker would suggest.
- Alerts if there is a sell signal when the average has changed.
- Analyzes possible stocks with long-term goals.
The trading bot performs a series of market research and analysis operations. The software analyzes the risk of a trade, the lengths of time a stock holds its price, uptrends, and downtrends, as well as drastic changes in the market.
This software analyzes the performance of a given stock in the market. In doing so, they evaluate the potential risks of certain movements. They usually take as viable options those currencies that have low risk in the market, while it will avoid movements in the face of an economic fluctuation.
To make a bot work, it is necessary to make a series of configurations. For example, you must link the bot to an exchange platform through an API key. This will synchronize the two platforms.
How to Choose Trading Bots?
There are too many criteria for choosing a trading bot. In principle, they all do the same thing: invest assets. However, some of them stand out from others because of the advantages they include.
Below, we explain what advantages these investment systems include and what aspects to take into consideration to prefer them:
- Storage System: Some of today’s most famous bots include data storage systems. These are managed in a cloud format and are available online.
- Assets You Work With: Of course, one of the main criteria for choosing one bot over another is that it works with a large number of assets. The more it includes, the more productive it will be for your finances.
- Interface & Ease to Use: Another of the main criteria for investors is that it should include a platform that is intuitive, easy to use and generates a good user experience. This means that it should be visually pleasing, easy to operate, and not require a lot of assistance afterward.
- Additional Benefits: Some platforms include certain discounts or special tools. They even have unique features that make the trading process easier and faster.
- Market You Work With: Currently, digital assets are undergoing an evolution. The use of digital currencies and cryptocurrencies is becoming popular within the stock market. If the market is wider, investors will be interested.
- Programming Languages and Platforms: This refers to the codes and configurations they use. This is a much more technical aspect. But, in conclusion, as long as your code is better worked, it will be easier to adapt to any other platform.
Types of Trading Bots
In theory, there are three types of trading bots. Each one is focused on a different type of investment. In brief, we will tell you how each of them works:
1. Forex Trading Bot
This is a bot that focuses on trading, buying and selling digital assets. It is the standard bot model that is available on most trading platforms. It allows you to pair currencies and exchange them at your discretion.
The benefits of these bots include:
- They power any type of exchange operation on the internet with automated and intuitive behavior.
- Simplify trading by digitizing routine operations. The system must be configured for this purpose.
- They take advantage of low investment costs.
- They do not stop working.
2. Binary Option Bot
It follows the same principle as a forex trading bot. The difference lies in the way they trade currencies. This bot selects two currency pairs and concentrates only on the falling or rising prices of those currencies.
In the same way, they make investments in stock currencies. This type of trading is done for a limited period.
Regarding its advantages, we can mention:
- They make thorough monitoring of two pairs.
- They have a great background in stock markets.
- These bots make quite accurate market interpretations.
3. CFD Trading Bot
They are a type of bot focused exclusively on CFD trading. That is, they work with contracts for differences. They manage the exchange agreements and monitor the costs both at the time of opening and closing of the exchange.
This software essentially focuses on market fluctuations. They evaluate which stocks are convenient to invest in according to price changes.
- They have a limited but effective working spectrum.
- They include the benefits of other investment bots.
- Always operate, performing trades and triggering notifications.