- Crypto order books tend to be populated with lots of small trades
- This may look like wash trading, but it’s almost always something far less sinister
- What causes these small transactions and who’s doing them?
When you’re on a crypto exchange, and you’re looking at the order book, you might notice that the vast majority of trades are all surprisingly small. Now, you might be thinking, who on earth would trade 0.0001 BTC on an exchange? But the answer is actually a lot more straightforward than you think. It’s bots and algo traders trying to take advantage of the bid-ask spread. No, you’re not witnessing wash trading or some Machiavellian plan to manipulate crypto markets, but in fact it’s the product of experienced traders fine tuning their bots.
Is This Legal?
Using a bot to trade for you is perfectly legal, and exchanges actually like having bots that trade like this. In Bitcoin trading, the average fee per trade is about 0.3%, meaning it’s really cheap to get into algo trading and you don’t need millions of dollars to get started – especially compared to the 2% or so that stock exchanges charge. Secondly. These bots place orders in-between the spreads, helping the price to carry on ticking over and order to get matched up. If crypto exchanges want to ban bots from algo trading, they could simply increase the fee per trade – but there are no benefits to this.
Can Anyone Algo Trade with Bots?
Algo trading is really popular, especially in the forex world. This means that there is a lot of kit out there that you can quickly repurpose to algo trade crypto for you – including profitable algorithms. There are a couple of ways to create your own algo trading bot, but the easiest is to use a drag and drop service like Mudrex. Mudrex requires 0 coding skills, all you have to do is set your targets, set conditions or copy other algorithms from the Mudrex market place. Alternatively, you can build your own by coding one up – if you’re feeling confident.
Watch Out For “Experts”
There are a lot of scammers out there posing as algo trading experts with their own algorithms. Earlier this year, Stefanos Papanastasiou – an Australian crypto trader – was arrested and sued for more than $20 million after he promised investors his algorithms would make them a fortune. As it turns out, his algorithms were totally useless and he ended up losing all of the money. The moral of the story is: always use your own algorithms, never pay someone else to use theirs.
Algo trading can be lucrative if you approach it the right way and set up your bot properly. Virtually all exchanges support algo trading, but the best exchanges to use an algo bot on are those with the lowest trade fees. You can get started for a very small sum of cash and make some nice profits – if your algo works well.
