The world of cryptocurrency is volatile and unpredictable. This is made even more so when the aspect of AI is thrown into the mix. As such, when it comes to Bitcoin, certain measures and strategies must be taken before trading can begin.

 

A multitude of strategies is in existence when it comes to trading on the general market of cryptocurrency. However, more success can be found when these strategies are combined, creating a larger, more streamlined version. These smaller strategies often combine to form the following:

• Arbitrage
• Grid
• AI trading 

 

In this article, we will look at each of these strategies and delve into their intricacies, use, and history in some cases.

Contents:

Arbitrage

Grid

AI Trading Bots

Final Thoughts

 

Arbitrage

Arbitrage or arbitrage trading is defined as taking advantage of the differences in a specific cryptocurrency’s price in a different country. This is usually due to the country-specific ways in which such exchanges operate. This gives any trader the ability to buy low and sell high on an exchange, giving them great profits.

 

Bitcoin’s decentralized nature has created a situation in which many exchanges have varying prices. This is something that is rather unique to Bitcoin markets and it means that arbitrage trading is often used. There are a few factors that concern why exchanges are reported to be different in different places and they are:

• The country-specific nature of exchanges including their laws.
• The slow process of price corrections using web equipment that is often not fast.
• The Bitcoin market’s decentralization

 

The main issue with arbitrage trading comes down to the fact that safety and security are not guaranteed. This is because trading in a volatile high market can severely impact profits when conducting an exchange between two or more cryptocurrencies. Fortunately, this can be covered by companies like Ovex that act as insurance against potential losses.

 

Grid

The volatility of the price of assets can be taken advantage of through arbitrage, but the same volatile nature can be detrimental to traders. This can be salvaged by placing orders above and below fixed prices. Doing this creates a network or “grid” of increasing and decreasing prices. This is what is known as grid trading and is a mainstay in the foreign exchange market.

 

This technique makes the most of the present volatility in the hopes that the price swings within the set price can generate profits. Seasoned traders usually achieve prime results through the use of their grids in multiple markets, volatile and otherwise. The only hope for them is that the prices are consistently on an upward swing. Grid trading does offer a lot in the world of cryptocurrency and brings with it many advantages. That said, it has its issues that can be difficult to overcome without in-depth knowledge of this sector.

 

Grid trading is most advantageous because the arbitrage strategy it employs is easier to go about and requires little to no forecasting. Unfortunately, the ultimate risk of grid trading is the sudden and rapid drop of prices without complementary supportive swings. The result of such a drop in prices is the loss of the strategy’s efficacy and more importantly, great losses for traders.

 

Fortunately, AI bots that run 24 hours a day allow for more automation and efficiency. Their existence can limit and sometimes eliminate the flaws of human error that can negatively impact grid trading. This leads us to our final strategy.

 

AI Trading Bots

The concept of trading bots is not entirely modern as the idea of an automated trading system can go back to Richard Donchain in 1949. Computers, as we know them today, didn’t exist back in 1949, but the principle of a set of rules that properly monitor and regulate the buying and selling of funds is the same. Trading boats as we know them have been used since the 1980s in one form or another, most recently in the world of cryptocurrency and Bitcoin.

 

The AI trading bots allow people to conduct trading much more easily because the study of data analytics is far too time-consuming for most traders. As such, the importance of the 24/7 functioning AI bots is invaluable according to Investopedia. The standard AI bot is composed of the following parts:

• Backtesting — the ability to test a potential trade against past data to help make an informed decision
• Strategy implementation — the point in which your bot adheres to a predetermined strategy
• Execution — the conversion of the bots into API requests the exchange can understand
• Job scheduler — the full automation of the entire process with a hard-coded and tested AI bot

 

Automation and arbitrage can bear good rewards, but they are great risks. These risks mainly affect those with limited knowledge and/or experience in the world of trading in cryptocurrency. The other main problem with automated trading is the fact that it is very expensive and you cannot have limited resources and expect to get in the door.

 

Final Thoughts

The world of cryptocurrency is always evolving and can lead to further complications for veterans and inexperienced traders as a whole. However, solutions also arise to combat these complications, although they come with their issues. This is why knowledge will ultimately be your greatest asset as any decision made could result in great success or catastrophic loss.

 

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