Why Using Crypto Trading Algorithms Is a ‘Must’

Why Using Crypto Trading Algorithms Is a ‘Must’

Algorithmic trading was developed in the mid-’70s to automate order flows. Since then, its popularity has exploded. Today, algo trading represents approximately 80% of the entire market volume. The global algorithmic trading market size is expected to grow from 11.1 billion USD in 2019 to 18.8 billion USD by 2024. Below are a few reasons why every trader has to start implementing algorithmic trading in order to optimize his or her trading results.

Catching Market Liquidity and Monitoring the Market

Many publications point out that liquidity in the cryptocurrency market space is relatively low and not constant. On the bright side, liquidity is continuously evolving, which is excellent for algorithmic traders. However, liquidity is unique for each individual digital currency and period of time.

Increased market liquidity for a specific asset is the result of a market event. There are thousands of coins and currencies, and traders simply cannot monitor all of them manually 24/7. An algorithm is a solution to this problem, and it is actually the optimal way to monitor the market and look for liquidity in specific cryptocurrencies. Getting a real-time signal when an unusual activity occurs can give a substantial advantage to the trader.

The 4Bulls platform offers a feature called “Market Eye,” in which the trader can create and customize an algorithm that would monitor the market around the clock; when an unusual activity is detected, the trader will receive an automatic notification.

Seeing Through Fake Volume and Fake Limit Order Books

Various studies outline the fact that the volume in the cryptocurrency market space is predominantly ingenuine. A report published by Bitwise goes even further by marking 95% of the volume on unregulated exchanges as appearing to be fake. In addition to this analysis, a firm called Chainalysis stated that approximately six Bitcoins in trade volume reflect only one Bitcoin that is received on-chain.

The fake volume on exchanges is the result of businesses trying hard to attract more users to their platforms. By outlining the market depth via exaggerated numbers on their order books, exchanges fool their users, which, in turn, can be costly for a trader. Unrealistic market depth can create unrealistic expectations, strongly affecting a trader’s P & L. For instance, a trader can place a limit order according to the market depth; however, because of the fake volume, the order might get executed at a significantly worse price due to misrepresentation of the market depth.

Algorithms can easily detect if the market depth is real, and they can also check how the trading volume is evolving for a selected exchange and determine suspicious behavior. The use of computerized programs helps to decrease the chances of being fooled by service providers in the crypto trading field.

Combating High-Frequency Players

2019 was a year of massive adoption of high-frequency trading in the cryptocurrency market. Some of the biggest high-frequency trading (HFT) firms, like Jump Trading and DV Trading, entered the battleground. At the same time, exchanges started offering services for such players.

Huobi and ErisX have separately begun offering co-location, a practice in which a high-frequency trader’s computer is placed in the same facility as an exchange’s computer servers. The proximity allows HFT firms to execute trades up to a hundred times more quickly, giving them advantages over the rest of the market.

Even though high-frequency trading is a controversial topic, the method of trading enhances liquidity in the market, which is great for algorithmic traders. Traders can benefit from higher liquidity; some may even be able to detect the behavior of HFT firms and compete with their algorithms. 

It is a myth that the algorithms of HFT trading firms are the most sophisticated ones. In most cases, high-frequency bots are just following repetitive patterns. If traders detect these patterns, they can easily take advantage of the situation. 

Too Many Exchanges

On the one hand, the existence of too many exchanges can be a problem for traders; on the other hand, the abundance of options creates opportunities for equipped market participants. Bid and ask prices can vary significantly among exchanges. Thus, gaps can potentially create unfair trading opportunities for traders.

The bid and ask prices can be monitored in real time via algorithms that are designed to inform traders of the situation in the market and prices across all exchanges. Moreover, with algorithmic trading, arbitrage opportunities also become available to traders.

To seamlessly manage a vast number of exchanges, traders can use the 4Bulls trading terminal, which offers a direct API connection to multiple exchanges.

No Coding Skills Required

The assumption that developing algorithms requires coding skills is not entirely correct. The 4Bulls platform offers a drag-and-drop functionality that allows the user to create and customize algorithms. Moreover, the platform has the tools for users to test their algorithms and share their signals with others.

When developing an algorithm, one of the most important things to do is to test the algorithm with real market data; this feature is available on the 4Bulls platform. After a trader develops and tests an algorithm, he or she can use it for his or her trades and share his or her signals with other traders by charging the followers a commission for each profitable copy trade.


Anton I.

Anton I.

Innovation Manager

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