From being an academic concept to entering into almost every major industry’s space, cryptocurrencies have evolved tremendously in the current business sphere. Cryptocurrency exchanges alongside blockchain technology have become the most demanded and profitable business ventures among investors in this digitized world, because of the many advantages it provides and the convenience to trade from their own spaces to anywhere in the world. Even though the concept is now familiar to a multitude of entrepreneurs around the world, one thing that they still find a bit of a head-scratcher is understanding how crypto exchange algo trading works.
In this blog, we are going to discuss everything you need to know about algo trading, which will help you learn better trading strategies, make better choices that will boost up benefits and profits for your business. Let’s get started with what crypto algorithmic trading is.
What does crypto algo trading mean?
Crypto algo trading is computer program software or a system that is used for trading in the market, and the trade is conducted by a set of specified rules. The algorithmic software consists of mathematical models and formulas by which the trade functions, i.e., it decides when and how to trade on a particular exchange. The algorithms place smaller orders and increase them gradually to attain maximum impact and output for the business.
There are several advantages the investors can attain from crypto algo trading. Let’s take a look at some of the crucial ones.
Key benefits of crypto algo trading
- Speed of transactions
Since the algorithms are written in advance and automatically executed, they help with swift transactions. The speed of the transactions is measured as a fraction of second, which is way faster than humans can recognize.
When the trader makes manual entries, there is a possibility for errors like buying the wrong currency pair or entering the wrong amount, etc. But, with algo trading, the computer automatically programs and executes the trade. Therefore there is no chance for such pitfalls.
- Elimination of human emotions/ decisions
In the manual human trading system, investors tend to get hyped sometimes. They will have the emotions of fear and greed which will lead to some irrational decisions, thereby incurring losses for the business. But, with an algorithmic trade system, everything is automated, which will completely eliminate the power for humans to make any decisions regarding the trade.
With manual trading, it is impossible for the users to run the system on the historical data, which makes it difficult for them to find faults, and identify which parts of the trading system are working and which are not. But with algo trading, the algorithms can run on the historical data as well, which is highly beneficial as it helps to find out errors in the trading system and rectify it before making it live.
- Reduced costs
As algo trading platforms run automatically, the investors do not have to worry about constant maintenance, market monitoring, and the trades can be executed without any supervision. It saves ample time, manpower, effort, and thus enables reduced cost transitions.
How Does Algo Trading Work?
To understand how crypto algo trading works, here are the four most essential components you need to know about.
For algorithms, data is the main key element. The functioning of the algorithms entirely depends upon the data. There are different types of data used by algorithms such as,
- Structured data, such as spreadsheets, CSV files, JSON files, XML, databases, etc. Structures format includes prices, trade volumes, financial data, etc.
- Unstructured data that does not have any format, including news, social media, audios/ videos, etc. Unstructured data are also sourced from social media platforms such as Facebook, Twitter, etc.
- Financial Model
Any algorithmic trade system involves functions based on the financial models into which they are formed. The aim of algorithms is to determine market dynamics. They are developed using various techniques with a set of rules that defines different behaviors in different scenarios.
The algorithms are executed with advanced functionalities based on requirements. It is ensured that the execution is smooth and derives parameters such as price degrees, speed, accuracy, frequency, etc.
A wide range of financial metrics is used to monitor the functioning of the algorithms, such as the Sharpe ratio, Treynor Ratio, Return of investments, etc. This helps in a huge way to enhance and improve the performance of the algorithms and execute trades seamlessly.
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Trading process using a BOT step by step:
- Creating an account and connecting with external exchanges
- Choose the trading pair according to your trade preferences and set the crypto trading BOT for your convenient time.
- Execution of BOT
- If you want to track the process at ease, you can download the BOT app connected to the exchange and track anytime.
If you want to set up your own crypto exchange algo trading platform, here is a set of features that you need to look into, which will help you with the best strategies for your exchange.
Features of crypto exchange algo trade platform
- High volume TPS – The BOT should be able to process multiple transactions per second with minimum latency.
- Scalability – The platform should be scalable to enhance growth and incur better opportunities.
- Integration of powerful tools, such as exchange stimulators, backend tests on past data, live market tests, paper trading options, etc.
- Instinctive user interface – The user interface should be inbuilt with core functionalities, graphical data, and charts, robust configurations that fit the user preferences
- Connectivity – The algorithms should be structured in a way it has the ability to connect to multiple markets and sources of data.
- Enhanced Security – The BOT should be protected with multi-layered security protocols to execute trades seamlessly, without any errors or glitches.
To get started with your trading BOT, you do not have to worry about all the technical, security elements, and the costs involved. We at Blockchain App Factory, have a set of the most experienced and dedicated developers who will help you with a crypto exchange algo trading platform for any type of exchange you prefer.
Our platform is feature-rich and ensures high-performance, quick, seamless transactions, and high-end security. We integrate a few elements into our software, that will help you with the most advantageous strategies for your trades, such as,
- Market Making
- Smart Order Routing
- Split Orders
- Price mirroring
- Basket orders
We cater to the most reliable and advanced services to our customers that will help them achieve their business goals and swoop profits in a short turnaround time. Our developers are available for customer support around the clock. The interesting part is, our services are quick and come with the best possible market prices. To know more, contact our experts.