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Automated crypto trading is a way to let a computer program manage your cryptocurrency investments. According to the parameters you set, the automated system will buy and sell as many times as needed, at any time, while you go about your daily life. Algorithms you can set up for the system include buy and sell price points, various technical indicators, or simple rebalancing parameters. While this all sounds like an easy way to invest and make money in crypto, there are both pros and cons to setting up this type of trading. Here are just some of the most important things to consider before using an automated crypto trading program.
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Pro: Crypto market is open 24/7
Unlike the stock market, the crypto market is open 24 hours a day, seven days a week. Since even the most dedicated traders need to make time for sleep, family and other obligations, using an automated trading system can fill in the gaps for when you can’t actively monitor the market. For example, if you decide to go on vacation for the weekend and don’t have internet access, your trading algorithm can still track the market for you and avoid missing out on profitable trades.
Con: Your bot can trade you into oblivion while you sleep
While the idea of a trading bot monitoring your crypto investments while you sleep may be appealing, there is always the risk that things may not go quite as planned. You may wake up one day to find that your trading program has made multiple purchases and sales and has lost you money while you were asleep. Many investors feel uncomfortable handing over real money to an automated system that can generate real losses or even margin calls for which they are responsible.
Pro: Movements in the crypto market can be fast
Cryptocurrency prices are still highly fueled by speculation. As such, rumors and innuendo can quickly change prices. An automated trading system can help you avoid being hounded by big price moves that can happen before you have time to react, or even when you’re just not paying attention. For example, if you are at work or going out with friends and a cryptocurrency goes up by 30%, your trading system can automatically collect that profit for you before it disappears. Since no investor can watch crypto prices 24/7, an automated trading system can act as your eyes and ears to not only help prevent losses, but also capture gains.
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Con: Your bot can create huge tax liabilities
While an automated trading system can provide many benefits, it is not always the best choice when it comes to tax efficiency. While you can program a trading bot to cut losses and take profits, it is difficult to match taxable gains and losses in an automated system. Typically, a trader will need to take a more hands-on approach when it comes to limiting the taxable impact of cryptocurrency transactions.
Pro: Automated trading removes emotion from the equation
As a trader, one of the worst things you can do is get emotional about your trades. Emotional trading leads to bad decisions, such as selling well when a crypto is about to plummet in price or buying in the midst of a speculative frenzy. Automated trading removes emotion from the equation completely as your trading bot only buys or sells based on rules and instructions, not on feelings or emotions.
Con: You are turning your investment strategy into a robot
Automated trading bots can certainly make life easier and more convenient for crypto traders. But in the end you pass your investment account to a machine. While you can program a trading bot to make profits, find points of sale, and implement other strategies, it can only be as successful as your instructions. In other words, as the old computer saying goes, “garbage in, garbage out”. A trading bot does not have the human capacity to adapt to situations or make counter-intuitive decisions based on additional information. Over time, it is likely that an automated trading system will make mistakes or miss opportunities because it cannot possibly be programmed to account for every external variable.
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About the author
After earning a BA in English with a specialization in Business Administration from UCLA, John Csiszar spent 18 years in the financial services industry as a Registered Sales Representative. Meanwhile, Csiszar earned both Certified Financial Planner and Registered Investment Adviser titles, in addition to a life agent license, while working for both a major Wall Street wirehouse and his own investment advisory firm. During his time as a consultant, Csiszar managed more than $100 million in client assets and provided individualized investment plans for hundreds of clients.