How Traders Use Crypto Arbitrage Bots

by Jake Wengroff

Bitcoin and other cryptocurrencies are assets that trade in high volume and at high frequency on multiple exchanges around the world. While some crypto investors pursue a strategy of buying and holding, others seek profit by taking advantage of small price fluctuations and inefficiencies. Indeed, this itself is a classic trading strategy, known as arbitrage, that exploits market inefficiencies and discrepancies in order to make a profit. 

Banks and investment firms have dedicated teams scattered across multiple offices around the globe, often working around the clock, to handle their trading operations. What can smaller, individual investors do who are also interested in seeking profits by exploiting market opportunities?

The answer, of course, lies in software and automation. Specifically, crypto traders can consider leveraging a bot, or an automated tool that conducts trades and executes transactions based on rules and limits set by human investors. 

Put together, individual traders can use a crypto arbitrage bot to seek profits from small, rapid trades that otherwise would require much more time, research and oversight.

Risks of Crypto Arbitrage Bots

The crypto community is divided on the benefits of bots. Of course, software and automation generally promise efficiency; however, many bots provide only marginal returns even when operating correctly. 

Further, according to Investopedia, successful use of a bot requires a deep knowledge of the digital-currency markets and an excellent supporting investment plan. Bots, like any piece of automation software, requires the human operator — in this case, the individual crypto trader — to input rules that tell them to perform certain actions when particular criteria are met. If the investor is unaware of particular trading strategies, then the bot will not produce the profits that the investor seeks.

Some investors can lean on a bot to support their current cryptocurrency trading — for example, programming it to discover prices on exchanges in the middle of the night while the investor is sleeping. However, for other investors, especially those who have acquired some knowledge of and familiarity with the trading patterns of particular digital currencies, by the time they’ve done the work to prepare themselves to adequately use a bot, they may no longer require its services.

It’s also important to note that crypto bots are unregulated, as is most of the crypto and digital-currency world. Even when used on popular exchanges, like Coinbase, Binance and Kraken, there is no insurance to safeguard you against losses. Of course, you can program the bot to halt trading when losses reach a particular limit.

Where To Find Trading Bots

Almost all of the large crypto exchanges offer the ability for traders to use bots. This normally carries a separate monthly subscription fee. Some bots are targeted for beginners, such as CryptoHero, while others are built for more advanced traders, such as 3Commas and Catalyst Enigma.

Pionex is a cryptocurrency exchange that gives users access to 12 free trading bots with no monthly fee, but it takes a 0.05% trading fee on each transaction, plus 10% of arbitrage profits. 

A bot is quality when there are plenty of users and an active community that delivers the good, the bad and the ugly. As crypto traders become more sophisticated, they will be able to distinguish between useful and unhelpful bots. As most bots carry a month-to-month subscription fee, it can be easy to initiate, and terminate quickly when there is a lack of performance.

Added Layer of Security to Crypto

While using bots or other services within a crypto platform, investors might be worried that increased activity will capture the attention of cybercriminals attempting to steal their assets. Indeed, an additional layer of security is needed for crypto transactions, regardless of the measures in place by the exchange or platform on which the assets are being stored or traded. 

TransitNet is creating the industry’s first third-party title registry, to add a layer of protection for cryptocurrency assets by providing proof of ownership. With a title in place, investors can feel safer that additional security measures exist to protect them in the event of theft or compromise. 

Join the forefront of the new crypto infrastructure. Request an exclusive registration for TransitNet’s title registry when it launches today.

Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, Jake covers such topics as security, mobility, e-commerce, and IoT.


Investopedia – What’s the Role of Bots in Crypto Trading?

TokenTax – The Best Crypto Trading Bots of 2021