Everything you need to Know about Crypto Algorithmic Trading

The cryptocurrency industry has evolved massively and is disrupting conventional business operations. One of the products of the crypto market that has gained much attention is cryptocurrency exchange software. It is the most technological and profitable venture that has helped businesses earn billion-dollar revenue.

In this blog, we will understand crypto algorithmic trading and how you can start with this venture.

What is Crypto Algo Trading?

In simpler terms, “crypto algorithmic trading” means using a system or computer program to trade in the cryptocurrency market according to a pre-determined set of rules. It generally works on the functionality of mathematical models and formulas to put upon the decision of how and when to trade a particular asset. It is not always true that algo trading works on complex models. A simple model to buy one asset after every 10 minutes for the next 60 minutes is also the finest example of algorithmic trading.

Let us further cover some of the crucial benefits of crypto algo trading.

Advantages of crypto algo trading

• Accuracy: Crypto algo trading eliminates errors that may arise due to manual entries. There is a possibility that while placing a ‘Buy’ order, a user may select a wrong trading pair or may enter the wrong amount, which can leave the trader in losses. On the other hand, as crypto algo trading is fully computerized and automated, thus there exists no chance of error.

• Speed of transaction: Algorithmic contracts are pre-defined and are executed through system software. The transactions are performed at lightning speed and with much accuracy.

• Eliminates sentiments while trading: Humans are irrational by nature and at times they tend to make some decisions that may affect the business adversely. This is the reason why traders and investors are going for the algorithmic trade system and separate emotions of fear or greed while trading.
• Reduces cost: Algo trading runs on a computer-based program that performs the transaction automatically. Users need not worry about regular maintenance costs, constant monitoring, and other supervision activities.
• Cross-validation: There are two ways of conducting trade, including a fundamental basis and a technical basis. For facilitating either of the two, there is a need to run a complete market supervision to find errors and faults in the market. This can be best achieved by integrating the attribute algo trading into the cryptocurrency exchange software.

Working of Algorithmic Trading

Crypto algo trading works on four essential components that are data, financial model, execution, and monitoring. Let us comprehend each on them one by one.

• Data- One of the most important elements in the algorithmic system is data. The entire functionality revolves around data, and the decisions are also based on data. It covers two types of data – structured data and unstructured data. Structured data covers CSV files, JSON files, XML, spreadsheets, and others. Unstructured data covers sources such as news, social media platforms, and other audio/visuals.

• Financial Model- After collecting the required data, it is exerted in the financial models. The main motive behind this functioning is to determine the market dynamics. The behavior of crypto assets is analyzed and examined through different scenarios to conclude.

• Execution- The calculations of algorithms are based on advanced mathematical formulas. The sense of enhanced accuracy and speed also helps boost the trade volume on the exchange.

Take Away

Algorithmic trading enhances and improves the trading experience of users. Global crypto traders and investors are looking forward to more algo based crypto exchanges. Whether you are an existing crypto exchange owner or if you are looking forward to developing a new crypto exchange, you should leverage the best cryptocurrency exchange development services.

If you require any assistance to upgrade or to build your crypto exchange, we can help you achieve your goal. Contact our domain experts to get started with your crypto project.