Why a Well-Developed Arbitrage Bot is The Best Tool for Trading?

4 Mins read

Why a Well-Developed Arbitrage Bot is The Best Tool for Trading?

With the cryptocurrency market consistently rising and new products, and new platforms being introduced daily, it isn’t a surprise that there are many trading opportunities for arbitrage. A chance encounter of a price difference for the same crypto assets on two different exchanges might have gotten your mind humming. But, in the amount of time you noticed the difference, someone may have already snagged the deal. Now, imagine if you had a counterpart that could work 24/7 and monitor these opportunities, and continue to make you money? There is such a tool. It is called an arbitrage bot.

Before we begin picking a well-developed arbitrage bot, it is essential to understand what arbitrage is.

Arbitrage is simply the process of finding variation in prices of different crypto assets among crypto exchanges and using this difference exploiting the variance to buy low and sell high. For example, when a trader buys 1 ETH for $2,000 on Coinbase and is able to sell the same ETH for 2.040 on Bittrex quickly. Many traders have been using such opportunities to make money in the market and amassing a sizable portfolio of assets managed by computer programs called ‘bots‘.

Similarly, Arbitrage Bots are computer software that actively looks for arbitrage opportunities, creates buy and sell orders to exchanges, and executes them on a given set of pre-defined trading strategies. For example, with the growing price of specific cryptocurrencies on news events, the arbitrage bot might find them priced lower at one exchange, buys them, and sell them at a higher price depending on the data and trends observed.

On Your Command Making you Money 24/7

Arbitrage opportunities can present themselves at all times. As of this writing, over 1,000 different exchanges for virtual currencies offer their services across the globe, some churning out a volume of over a billion dollars a day. To attempt to do arbitrage manually is an arduous task if not downright foolish to try. An arbitrage bot can be your secret weapon in finding and exploiting arbitrage opportunities that happen and disappear in the blink of an eye.

Arbitrage Bot Keeps You From Acting on Personal Sentiment

Aside from making you money 24/7, an arbitrage bot can help you avoid costly mistakes by acting on arbitrage opportunities out of personal sentiment. An arbitrage bot can evaluate the data on various arbitrage opportunities, evaluate them objectively, and then make an informed decision on whether to avail an arbitrage opportunity. Please do not misunderstand. We do not mean not evaluating and acting or market sentiments. Market sentiments are a valuable part of making arbitrage decisions: we mean uninformed snap decisions based on personal sentiments and emotions.

In the end, using an arbitrage bot minimizes risks, grows your portfolio of arbitrage opportunities you engage in, limits your losses, and makes you money.

Snap Decision Made Accurately!

Arbitrage opportunities require you to think fast and make quick decisions, darting in and out of positions on short notice. To accomplish this, you need a partner that can provide you timely information objectively. Having a bot also means you need a disciplined approach to stick to your trading plans, know when to book the profits and losses you have incurred, and have a running tally of what positions you hold.

There is no doubt that a human mind is an incredible tool, but what if all this was done for you accurately on your command and in the background? Wouldn’t it be great?

Add to that the idea that the human mind can fog over the stress and anxiety of developing events. Not for an arbitrage bot, though! An arbitrage bot is unaffected by a volatile market and remains effective in all market conditions. Even if the currency market goes into a tailspin and most of your positions lose half of their value overnight, the arbitrage bot will continue trading with its strategy being unaffected.

No Latency

Humans, despite their efficiency with multitasking lag, when taking action. An arbitrage bot works in concert with different exchanges, so there is no latency. An arbitrage bot can make profitable trades whenever the bot detects an arbitrage opportunity. In many instances in arbitrage opportunities, the latency and the bottleneck are the primary causes of the inability to profit from opportunities detected.

Backtesting Capabilities

A decent arbitrage bot also has tools like templates, automated trading, visual strategy design, and back and forward testing. These tools allow you to have as many trials runs for all scenarios as you can imagine for planning a robust strategy that makes you money.

Meets your Needs

Whether you are an expert at developing strategies with your head stuck into the laptop display, or you are a novice trader who can only click their way through a visual strategy designer still unsure of how things work, an arbitrage bot provides you with a variety of interfaces, metrics, and tools to do what you are passionate about. It is not concerned with how you go about turning your vision into a plan to make money in the market. It works regardless of how you approach the problem day or night and delivers you an unassailable tool that executes your strategies per given instructions at a touch of a button.

Other Advantages

Along with the automatic execution and the ability to test your investment strategy, today’s arbitrage bot offers multiple advantages. With the rapid implementation of cloud technology, an arbitrage bot can be set up for you seamlessly without having to have someone come into your home to do so. You can choose exchanges to integrate with them to have your trades executed instantly and automatically. You can hire outside quant consultants to create or fine-tune your proprietary algorithms. You can take advantage of modern order types like Time Weighted Average Price or Volume Weighted Average Price that prices your orders to keep the risk of delayed execution to a minimum.

Finally, as you get more experienced, you can abandon the pre-built algorithms and opt to hire a quant team or with a group of developers to develop your algorithms.

In conclusion, having an arbitrage bot provides you not only with a tool to execute your orders on pre-defined conditions, but it also provides you with an objective, informed, accurate, and latency-free execution of strategies and helps you earn money in a highly competitive and complicated marketplace. It enables you to act without sentiment, be productive, and build on the experience and passion you possess for cryptocurrency arbitrage in a still developing and promising industry.

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