How do Bitcoin trading bots work?

Bitcoin is the largest cryptocurrency and using a robot is an easy way to trade it automatically. This guide explains how Bitcoin trading bots work.
Updated: Aug 9, 2022

This beginner-friendly guide explains what Bitcoin trading bots are and how they work. Find out everything you need to know about Bitcoin trading bots and how they can automate your trading to earn passive income. 

What is a Bitcoin bot?

It’s a piece of automated software that trades the Bitcoin market. Bitcoin trading robots use either algorithms or AI to find trading opportunities and place them automatically. Algorithmic bots are programmed to carry out specific functions when certain criteria are met. AI bots use advanced technology to read what price is doing before predicting what it will do next. 

Bitcoin bots can be used to create a safe trading strategy and are helpful tools to make passive income from the market. Bots help to remove a trader’s emotions because they operate purely on the charts and technical information. There are lots of different types of crypto bots covering a wide range of trading strategies.  

How do Bitcoin trading robots work?

There are many types of robot, and while each one performs different functions, they all operate in a similar way. Below are the main components that make a trading robot work.

1. Connect to the Bitcoin market

Bots can only work if they’re connected to a trading platform that has the bitcoin market available. This includes crypto exchanges like Binance and some brokerage platforms like MetaTrader 4. Bitcoin robots link to platforms through APIs, which are secure keys and provide the ‘bridge’ between the two.

One a bot has been connected to a trading platform users can then configure it and change settings such as risk parameters. It is also possible to backtest your automated software using historical price data. Certain types of robots that use arbitrage strategies need to be connected to multiple exchanges in order to take advantage of price differentials. 

2. Perform analysis

As previously mentioned, bots can either be programmed to analyse the price of Bitcoin, or use artificial intelligence to make decisions. The software uses market data and interprets it before deciding whether to buy or sell. The majority of Bitcoin trading robots allow users to customise what data is analysed before a trade signal is generated.

Bots that run on algorithms usually use technical information during the analysis phase. This includes simple indicators such as RSI’s and more complex data like depth of market and order books. Artificial intelligence and machine learning bots use advanced technical tools to read historical data to predict future moves. 

3. Execute a trade

This is when the robot will execute a live trade based on its analysis. Trading robots are easily customisable and users can override factory settings to suit their requirements. The size of a trade the bot makes will depend on the risk settings you apply to it. Some bots let you adjust risk based on the strength of the signal.  

When a trade has been executed it will be shown in the open positions section of your trading account. All trades that are made by a robot can be accessed in your trading history and are also recorded on the bot itself. 

Should I use a bitcoin trading bot?

If you want to automate your trading then you should consider using a Bitcoin bot. Using a robot has lots of benefits and can not only save time, but is also a way to generate passive income. There are a range of different types of bot available and it is possible to use more than one to incorporate different strategies to your trading portfolio. 

Creating your own bot is the easiest way to automate an already profitable strategy, although this method usually requires some computer coding knowledge. However, there are some online services that provide platforms where you can design a custom bot without the need to know complex code. 

If you don’t want to design your own piece of automated trading software then there are lots of other options available. The easiest way to use a bot is to purchase one from an online vendor. You can also use social trading networks to automatically copy the trades of other profitable Bitcoin traders. 

What should I do now?

Now that you know how Bitcoin trading bots work you may want to consider using one yourself. The cryptocurrency market is largely unregulated and there are lots of unscrupulous vendors selling scam bots. It’s important to take the time to research which robots are genuine. 

Here on Invezz we have lots of independent reviews covering some of the best known bots around which you can use to help choose one. We also have a dedicated cryptocurrency section on our website where you can learn more about bitcoin and find other useful information on trading robots.

Our editors fact-check all content to ensure compliance with our strict editorial policy. The information in this article is supported by the following reliable sources.

Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >

Prash Raval
Financial Writer
When not researching stocks or trading, Prash can be found either on the golf course, walking his dog or teaching his son how to kick a… read more.