Crypto Trading Bots: How to Choose the Right Platform

Choosing the wrong crypto trading bots platform will set you back for months! Do your homework or be damned!

The author is a co-founder and Core Team member of Superalgos.org

I'll go straight to the point. There's too much critical information to convey to be wasting your time with nonsense.

There's a lot of garbage, empty promises, and scams in crypto land, and the crypto trading bots space is no different.

This piece touches on the most important things you should consider, what is desirable, and what you should avoid at all costs. Some of the points I'll make may be more relevant to developers looking for a platform to code crypto trading bots, but most are relevant to non-technical users and traditional traders too.

I'm not here to tell you which platform to use. If I did, then you'd need to trust me, and that would be no better than all the empty promises and scams out there. Take everything I say with a grain of salt and judge for yourself. You don't know me, so why trust me? In fact, don't trust anyone in the crypto wild west.

Yes, that's point number one. I told you I wouldn't waste your time!

Photo by Chris Murray on Unsplash

Don't Trust Anyone in the Crypto Wild West

Unless you have to. 

Decentralized exchanges are not ready for serious trading yet. So, for the time being, you have no choice but to trust a centralized exchange. That is as far as you should go trusting entities. Anyone beyond you and the exchange is a third party.

I'm not being paranoid. Trusting third parties with your exchange API keys, your personal information, your capital, or your strategies is insane.

Why trust your exchange keys to some 2-year-old company with substandard security that could be hacked in ten minutes by a teenage girl from a basement?

Top crypto exchanges invest millions in state-of-the-art security and still get hacked every once in a while. The Magic Trading Bots Ltd company around the corner doesn't have the cash nor the skills to be the custodian of the huge honey-pot that thousands of traders' exchange keys embody.

Why trust your personal details, including the volumes and pairs you trade to a company with an insufficient track record? Why put such sensitive information in the hands of an entity that hasn't earned your trust?

Why trust a third-party with your funds when you can have a bot trade directly from your account at the exchange? There is no reason whatsoever why Get-Rich-Quick Bots Ltd should ask you to transfer your tradable funds to them. The trading bot should always access your account at the exchange via the exchange's API using your exchange keys and trade from within your account, with keys restricting withdrawals.

Why trust your strategies to an entity that may use them behind your back? What makes you think that Easy Trading Bots Ltd wouldn't front-run your strategies and systematically steal from you? Could they monetize your strategies without you knowing? Yes, they could. Could your strategies lose their edge because of such shenanigans? Again, yes.

Stay Away From Turn-Key Solutions

Companies and platforms offering ready-made crypto trading bots sell empty promises and border on scammy behavior.

There is no such thing as a free lunch in financial markets, let alone crypto markets. There's plenty of smart people doing their homework and putting in long hours to compete for a piece of the pie.

If someone tells you that you can make easy money trading crypto without any serious effort, they're lying. If that same someone is trying to sell or rent a crypto trading bot, you are about to be scammed.

And remember, a bot will need your exchange keys to access your account at the exchange, which takes you back to point one. There's a myriad of ways in which these sorts of schemes may hurt you.

Building profitable crypto trading bots takes time and effort. Take trading seriously if you wish to be successful. If you're not a trader already, get ready for a steep learning curve.

Stay Away From Black Boxes

If you don't know what the trading bot does nor how it does it because it's closed-source proprietary technology, stay away from it unless you are presented with a verifiable independent audit of its track record. There's a reason why investment funds have to publish auditable accounts. Anyone can promise a pot of gold at the end of the rainbow, but fairy tales won't make you money.

Photo by Luis Morera on Unsplash

If the trading bot is a platform that doesn't carry the trading logic—which you intend to code—black boxes are a no-go too. Why would you invest time and effort coding bots on a platform over which you have zero control? What if you run into dead-ends after months of coding? What if you need to extend the infrastructure to support a feature you need? What if the company goes under and stops developing the platform?

If you are going to build the trading logic on top of a platform, you need to have control over the platform or risk your hard work becoming obsolete through no fault of your own—other than that one bad decision you made while choosing platforms.

Research Open-Source Solutions

If you follow the obvious logical path, you will invariably arrive at the conclusion that you have to look into the Open-Source Software space.

But don't trust me! I have a vested interest in my own crypto trading bots open-source project. Think and decide for yourself!

You will find plenty of articles talking about the perils of open-source software. Many of the things you will read are true. Open-source in and of itself is not the solution. It's just a starting point. A requirement, among others.

But you will also read falsehoods, distortions of reality, and ill-intentioned commentary written or paid for by the actors I described earlier. Unlike me, they won't tell you about their interests.

It is no secret that open-source has been eating corporations' lunch for a long time on many domains, so no wonder why the actors described earlier have to invest in propaganda.

Open-source solves some of the issues mentioned above to varying degrees. But there is nuance. Open-source is not a silver-bullet solution.

Transparency is a given in open-source, because—by definition—the code must be distributed with the software, thus, is available for everyone to scrutinize. A project with traction attracts many developers, and believe me, most look into the code even before they install the software.

Open-source software—also by definition—is free software, that is, software that you may freely use, freely distribute, and freely modify to fit your needs. This feature solves—to a certain extent—the risks of getting trapped in a dead-end like when building bots in a black box. The extent that is solved is that, even if the project goes down, you may still use and modify the platform's code.

In fact, the death of an open-source project is usually a transition to a forked version of the project, which may be kept alive by the community of users even when the founders and original maintainers decide to move on. If an open-source project actually dies, it's just a sign that the market has found a better solution, that is, the project failed to adapt when challenged by a competing project.

This is natural selection at its best and is one of the reasons why it's important to do your research before committing to a platform.

Your goal is to identify the project that is more likely to win the race, because, as you can see with all types of digital and crypto networks, the usual case is that the winner takes it all!

Photo by Sheri Hooley on Unsplash

The principle behind the act of forking a project to create a new version that may develop and thrive after the original is gone, or even in parallel with the original, is called Permissionless Innovation. It means that anyone may choose to innovate without the need to convince project maintainers to go in a new direction. If you are convinced your idea is better, all you need to do is put your work where your mouth is, do the job, and the market will decide which version of the software to use. A great illustration of this concept is Linux and the more than a thousand available distributions.

The next problem that open-source, and particularly open-source crypto projects solve is trust. In the crypto universe, a trustless deployment is paramount. Crypto projects leverage technologies such as cryptography or distributed ledgers to achieve the ultimate goal: allowing the use of the network without requiring trusting third parties.

In the case of a crypto trading bots platform, there is no need for distributed ledgers. All you need is to be able to run the software on your premises—your own physical or virtual machine—and have complete control over your operation. The exchange keys you feed the software should only be known to you and the exchange, and—as explained earlier—the software should connect directly to the exchange, with no intermediaries, and trade from within your own account at the exchange.

Look for the Qualities that Make Winners

Your job is to identify the project that will conquer the space. You have to pick the winner. It's not an easy job, but I can give you some pointers as to what to look for.

Community

The community is the heart and soul of an open-source project. The active community is a sample of the software's user base and is also the people backing the project and contributing to making it better, driving development.

What makes a community great? Look around you. Online communities can be productive or destructive, and everything in between. A great community is one that is open and welcoming; one that is ready to help onboard newcomers; one that is ready to share and contribute to the project.

Visionary Approach

Jeff Bezos didn't conquer the retail industry because his vision was to sell books over the internet. Books were merely the crack in the wall he found to find his way into a new space, set a foot in solid ground, and build his vision of an "everything store".

Larry Page and Sergei Brin didn't start Google to compete with Excite or Altavista. Their original vision was to "organize the world’s information and make it universally accessible and useful".

Steve Jobs didn't start Apple to compete with IBM in the corporate world. He knew from the beginning that the personal computer "would change everything about the way we worked, educated our children and entertained ourselves".

I could keep going, but I'm sure you got the point: a project that starts with the vision of building a crypto trading bots platform is not the project that will conquer automated crypto trading nor will dominate the larger trading intelligence space.

Incentives and Alignment of Interests

I said earlier that the engine that drives development in an open-source project is the community. For the engine to work effectively, it needs fuel.

What fuels a community is the proper set of incentives and the way in which the interests of the community align with the interests of the team leading the project.

The project that is more likely to dominate the space is the one that is built on a positive feedback loop with the community. The project's vision must lead to benefiting the community, and the incentives put in place to contribute to the project must lead to attaining the project's vision.

Permissionless Innovation On Steroids

When a project is forked and a new version starts competing with other versions, the community may split too. In the short term, this may seem like a hindrance, as fewer people in the community may translate to less drive and a slowing of the pace of development. However, in the long run, the outcome should be positive: either one version wins and the community gets back together, or both versions survive and thrive, effectively exploring different spaces.

An alternative and superior form of permissionless innovation is one by which the project pledges to allow the community to innovate within the project. That is, the project makes an open promise to merge into the main distribution any alternative features or functionality that the community may come up with, even if they are not directly aligned with the direction of development the project has chosen.

Such a policy demonstrates a superior understanding on part of the project leaders as to what makes collaboration thrive. It shows that personal egos are second to the vision, and that project leaders fully understand the value of diversity. The result is the same kind of exploration of the space, without the splitting of the community.

In the case of open-source crypto trading bot projects, such a policy would likely produce software with alternative User Interfaces, Trading Engines, or Charting Systems, and users would be free to go back and forth between the different implementations, while still benefiting from a rapid pace of development on the core infrastructure.

Wrapping Up

What I laid out in this piece is the broad brush analysis of the issue, but I believe I haven’t left out any of the major concerns. Again, I’m biased, so contrast what I’ve said with the rest of the material you may find out there.

If you arrive at the conclusion that an open-source crypto trading bots platform is the way to go to build your bots, make sure you add Superalgos to your research list.