Tue. Feb 20th, 2024

What is algorithmic trading in the crypto industry?

 Algorithmic trading in the crypto market is the process of using computer algorithms to perform trading operations in the cryptocurrency market. It’s also known as automated trading or trading using robots (trading bots).

In algorithmic cryptocurrency trading, traders create and customize programs or algorithms that automatically execute trades based on pre-defined rules and conditions. These algorithms can analyze market data such as prices, trading volumes, and other factors and make decisions to buy or sell cryptocurrency based on that data. If you want to dive deeper, please go by the link.

Background

Algorithmic trading in cryptocurrency began to develop in parallel with the emergence of the first cryptocurrency exchanges. Here are the exchanges associated with the early introduction of algorithmic trading in cryptocurrency:

  • Mt. Gox: One of the first and best-known cryptocurrency exchanges to feature algorithmic trading was Mt. Gox. It was founded in 2010 in Japan and for several years was one of the leading platforms for bitcoin trading. Mt. Gox provided an API (Application Programming Interface) for developers, which allowed them to create and use algorithms to automate trading operations.
  • Bitfinex: Bitfinex, founded in 2012, was also a popular cryptocurrency exchange, which subsequently introduced algorithmic trading. Bitfinex provides various tools and features for traders, including the ability to create and customize algorithmic strategies using APIs.
  • Binance: Binance, one of the largest cryptocurrency exchanges in the world, was founded in 2017 and also offers algorithmic trading. Binance provides an API with various functions for creating and executing automated trading strategies.

As the industry evolved and new exchanges emerged, algorithmic trading became available on other platforms such as Coinbase, Kraken, Huobi, and others. Each exchange may offer its own features and API for algorithmic trading.

Difference between AT and other types of trading

The option allows users to automate trading strategies, eliminate the emotional impact on decision-making, and improve transaction speed.  It also helps traders to react to market conditions instantly. In other types of trading, where decisions are made manually, emotions may play a more significant role in the decision-making process.
 
Computer programs can analyze large amounts of data and make decisions within a fraction of a second, which can be especially important in the fast-moving and highly volatile cryptocurrency market, while other types of trading may require more time and manual involvement to execute transactions.

Who is this option for?

The feature can be attractive to different types of traders and investors. Here are a few groups of people it can be particularly suitable for:

  • Professional traders
  • Institutional investors
  • Retail traders
  • Researchers and developers
  • Beginners and learning traders

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