Binance Trading Bots: Your Ultimate Guide
Cryptocurrency can be tricky, risky, and very volatile. These three adjectives, while accurate, can easily paint a negative picture of crypto and everything it stands for. After all, who wants to willingly subject themselves to the risk and potential negative outcomes?
However, cryptocurrency’s one-two punch of complexity and volatility makes it a fantastic asset class for making LOTS of money. Taking advantage of volatile prices to buy low and sell high is the average crypto trader’s bread and butter. Having a firm grasp of crypto’s complexity also puts one in a prime position to profit from the system.
Of course, not everyone has the time (or patience!) to study blockchain and become a crypto master. That said, if you lack the necessary time or expertise to trade crypto successfully, you typically resort to one of two things. It’s either you enlist the services of a fund manager, or you use a trading bot.
What are trading bots anyway?
Put simply, trading bots are programs that are tasked to automatically buy and sell various assets at the right time to earn a profit. You can use trading bots to buy and sell all sorts of things--stocks, fiat currencies, and yup, even crypto.
These bots’ main goal is to generate a profit that exceeds what you would have earned if you just went for the safer buy-and-hold (or, in crypto terms, buy and hodl) pathway. At their core, all trading bots are designed to capture as many of the asset price upsides as possible while avoiding most of the downsides.
Trading bots vs. Human trading
You might be thinking, what’s the point of using a trading bot? Surely you’ll get better results if you simply relied on the best tool of all--the human brain--right?
Well, trading bots and manual trading have their advantages and disadvantages. But for the sake of this article, let’s discuss the main selling points of the former.
First of all, making money as an active trader can easily be a full-time commitment. Heck, many traders even spend more than 12 hours a day monitoring markets and executing trades. With a trading bot, transactions are done automatically. There is no need to sit in front of a computer all day waiting for the right timing to buy and sell assets.
One more thing traders usually grapple with is emotion. Emotions are notorious for getting in the way of even the most sound trading strategies. Things like FOMO and FUD are responsible for some of the world’s most significant trading losses. If you want to take greed and fear out of the equation, bots are a great option.
How a crypto or Binance trading bot works
In an ideal world, all trading bots are built with ultra-smart programs that make gazillions in profit with minimal to no risk. Unfortunately, it’s not that simple. Not every trading bot will be profitable.
To tell you the truth, most of them will probably result in a net loss.
This is why it’s crucial to choose your crypto trading bot wisely. But how do they work, exactly?
Many cryptocurrency exchanges like Binance allow users to use an API to interact with their platform. This is how you can authorize a trading bot to buy and sell through your Binance account. All your crypto remains in your Binance account, bots cannot withdraw anything (just make sure you leave ‘Enable Withdrawals’ unchecked when creating an API).
Digging deeper, the mechanism behind a trading bot essentially works in three stages: signal generation, risk allocation, and finally, execution.
The signal generator is what does most of the work. It’s responsible for making predictions based on previous and current market conditions and other indicators. It then sends a buy or sell signal, which leads to the next stage.
Risk allocation is the stage where decisions regarding risk and reward are made. Once the bot already has a signal to buy, it decides just how much to spend on the trade. This decision is based on a specific set of rules and parameters that distribute risk.
Now that the bot knows what to buy and how much to spend on it, it’s time to execute the trade. Through API key requests, the crypto bot will be able to perform actual transactions on Binance.
Why would you need a Binance trading bot?
There are many reasons why people use trading bots in crypto. The most obvious reasons (that is, those that also apply to other asset types like stocks) have already been discussed above. Trading bots:
- Make it easier to transition from passive investing to active trading
- Allow you to save time, effort, and energy
- Eliminate FOMO and FUD from your trading strategy
That being said, there are more reasons to use trading bots in Binance specifically.
Unlike the stock market, cryptocurrencies are available to trade 24/7. The need to sleep and eat can make the unassisted human trader miss plenty of chances to make good money. Binance trading bots, on the other hand, work all day and night to scour the market of profitable opportunities.
Automation enables your portfolio to benefit from speed. Delays because of human thinking and reaction time are eliminated through robots.
A Binance trading bot can process gigabytes of data all at once. This is simply impossible for the human brain to compete with.
Are Binance trading bots legal?
Trading bots are fully legal and even warmly welcomed in most cryptocurrency spaces. Of course, things that are illegal under normal circumstances would still be unlawful in crypto. Use intelligently-designed bots to help you earn more money trading crypto -- not to scam people or participate in devious schemes.
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