Comparing Crypto & Forex Algo Bots

AI Is Taking the World by Storm

Artificial intelligence is taking the world by storm, and few sectors are set to be as influenced — or disrupted — as personal finance. In recent years, investors have started leveraging the power of artificial intelligence to execute trades on financial markets. Though algorithmic trading bots, or algo bots can theoretically be programmed to work on any market, an algo bot programmed specifically to trade on forex can’t necessarily be migrated to crypto exchanges. Algo bots are designed to execute trades based on pre-set rules and limitations, and while algo bots offer many advantages, they are not perfect to the point where they can operate without human oversight. Algo bots for more traditional markets like forex are similar to, but have key distinctions from algo bots designed for crypto exchanges. 0 Percent is pioneering this space and has already developed 4 algorithmic trading bots and is actively working on expanding our AI arsenal.

Cryptocurrency exchanges are infamously volatile and high risk, and while the potential to strike digital gold is there, so too is the potential to suffer significant losses. Here are some pros and cons to using algorithmic trading bots on crypto markets.

Pros of Algorithmic Trading Bots on Crypto Exchanges:

  • Increased Speed & Efficiency: Crypto markets are incredibly fast paced, so being able to utilize algo bots as a tool in the investor’s toolkit can hold great potential for positive outcomes. Crypto bots can work at very high speeds, keeping up with the fast paced crypto exchanges.

  • Informational Capacity: Cryptocurrencies are based on underlying technologies, functions and protocols. Whether a cryptocurrency rises or falls in price is oftentimes based on the underlying technology behind the crypto. Algo bots can retain all of that information.

  • Consistency: Algorithmic trading bots can execute trades 24/7 without the need for human intervention, which can help to ensure consistent performance over time. While traditional markets aren’t open 24/7 — although forex is open 24/5 — algo trading bots can trade 24/7.

  • Backtesting: Algorithmic trading bots can be backtested using historical data to evaluate their performance under various market conditions. This can help traders to refine their strategies and improve their overall trading performance.

Cons of Algorithmic Trading Bots:

  • Limited Flexibility: Algorithmic trading bots operate based on pre-set rules and algorithms. This means that they may not be able to adapt to changing market conditions or unexpected events. Algo bots that are connected to the internet may be more advantageous when executing trades on crypto markets.

  • Risk of Errors: Algorithmic trading bots can sometimes make errors, such as executing trades based on incorrect data or failing to take certain factors into account. These errors can result in significant losses. Especially considering that cryptocurrency markets are very volatile and high-risk, algo bots must be used with regular human oversight.

  • Must be kept up to date: There are over 22,000 cryptocurrencies in existence, with more being created every day. For an algo bot to operate to its full potential, it must be kept up to date on blockchain technology and cryptocurrencies.

Risk Management on Crypto Markets vs. Forex

While trading on any market carries inherent risk, not all markets carry equal risk. In any regards, risk management is an essential aspect of trading. However, there are some key differences in the risk management techniques used in forex compared to crypto trading, and these differences will be important when considering using algorithmic trading bots. 0 Percent’s algo bots are trained according to a variety of risk management techniques, and also feature an adjustable risk management function, so your algo bots can execute trades according to your level of comfort regarding risk. Click here to learn more about the Algorithmic Trading Accelerator program!

  • Leverage: The foreign exchange, or forex market allows traders to use leverage, which means that they can control a larger position with a smaller amount of capital. While this can increase potential profits, it also increases the risk of losses. As a result, forex traders often use stop-loss orders and other risk management techniques to limit their exposure to losses. This feature is not present on crypto markets.

  • Volatility: As previously mentioned, the cryptocurrency market is known for its high risk and high volatility, which can create significant opportunities for profit but also increases the risk of significant losses. To manage this risk, crypto traders may use stop-loss orders, limit orders, and other risk management techniques to protect their investments.

  • Margin Calls: In the forex market, if a trader’s account falls below the margin requirement, the broker may issue a margin call, which requires the trader to deposit additional funds to cover the margin. If the trader is unable to meet the margin call, their position may be closed out at a loss. Crypto trading platforms generally do not issue margin calls, which means that traders need to be vigilant about managing their risk and ensuring that they have sufficient funds to cover their positions.

  • Market Manipulation: The crypto market is known for its susceptibility to market manipulation, which can lead to sudden price spikes or drops. To manage this risk, crypto traders may use technical analysis and other tools to identify potential manipulation and adjust their positions accordingly.

While there are several differences in the risk management techniques used in forex and crypto trading, many of the same principles apply. Traders utilizing algo bots should always be aware of the potential risks and take steps to manage their exposure, regardless of the market they are trading in. By ensuring that a trader’s algo bot is properly trained according to successful risk management techniques, traders can potentially minimize their losses and potentially increase their chances of long-term success.

With regards to algorithmic trading, there are some key differences between the crypto and forex markets that traders should be aware of.

  • Volatility: The crypto market is known for its high volatility, with prices oftentimes swinging wildly in a short amount of time. This can create opportunities for profitable trades, but it also means that algorithmic trading bots need to be able to adapt to rapidly changing market conditions. Having a trading bot that is connected to the internet can potentially make the algo bot more effective at quickly responding to rapidly changing market conditions. The foreign exchange, on the other hand, tends to be relatively more stable and predictable, which may make it easier for algorithmic trading bots to execute trades effectively. Nevertheless, currencies can be affected by geopolitical events and other breaking news stories, so algo bots still need to be able to respond to quickly changing market conditions.

  • Liquidity: The forex market is one of the most liquid markets in the world, with several trillion dollars traded every day. This high liquidity allows traders to minimize the impact of large trades on the market. The crypto market, on the other hand, is far smaller and much less liquid, making it more difficult to execute trades at favorable prices.

  • Market Hours: The forex market is open 24/5, allowing algorithmic trading bots to execute trades day and night. The crypto market is open 24/7, but is generally less active outside of daytime working hours in the Western hemisphere.

  • Regulation: The forex market is heavily regulated by governments and global financial institutions. This means that traders need to be aware of and comply with a wide range of regulations when trading forex. The crypto market, on the other hand, is relatively unregulated, which can create opportunities for profitable trades but also increases the risk of fraud and risk.
Successful Algorithmic Trading Book

Algorithmic Trading Accelerator

Nothing is Risk Free

No market is risk-free, but algorithmic trading bots can potentially increase your chances of success regardless of the market. Keep in mind that not all algo bots are created equal, so to increase your chances of success you will need to ensure that your algo bots are properly trained according to the most effective risk management techniques, trading strategies, and can adapt to quickly changing market conditions.

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About the Author

Jeff Sekinger

Jeff Sekinger Founder & CEO, 0 Percent Who is Jeff Sekinger? Visionary Trailblazer Sekinger has been in the financial industry for over a decade. Starting

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