Automated software that can carry out tasks such as cryptocurrency trades.
Trading bots have been used on stock markets for several decades, arguably reaching their zenith with complex high-frequency trading (HFT) software. The most advanced bots can analyze many markets at once, and automatically buy or sell in response to real-time changes.
Advocates of trading bots point to several key advantages over human trading. Bots are far speedier than humans, and they don't need to rest. They are also not influenced by emotion, simply making the choices that are statistically most beneficial. Finally, bots can handle vast amounts of data — ingesting and analyzing infinitely more information than a human can in the same time period.
In crypto trading, bots have several common applications. They can be used to automate time consuming but mundane tasks such as regular portfolio rebalancing. They can be used to ensure that orders are executed at precisely the desired time — for example, to execute a sell order when an asset reaches a specific threshold. They can also simplify trades that would otherwise be too complex for a human to carry out.
Most crypto trading bots will fall into one of four categories: arbitrage, market making, technical trading, or profile automation. There are many off-the-shelf bots available within all of these categories, or users might decide to code their own.
While bots can simplify trading, it is far from guaranteed that they will be profitable. The byzantine algorithms and vast computing power available to the largest institutional investors enables them to gain a real competitive advantage, but these are not available to the average crypto trader. However, even open-source bots can eke out marginal profits that can still represent improvements over index tracking.