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Bitcoin Exchange Trading Bots: My Take

Introduction

Any time that something new comes out, someone is going to try and make it more efficient. It really does not matter what that is, and Bitcoin's exchanges are no different. This goes for the rest of the crypto currencies as well, but they are all related in that they cover Bitcoins so that is what we are going to focus on with this article. I want to look at the automatic trading bots and the effect they have on the economy.

Recent Worldcoin Catch

Recently I read about a bot that members of the Worldcoin community found. Every time someone would post a new sell order, the bot would automatically remove its existing order and undercut them by a single satoshi. This allowed the bot to always have the lowest selling price, ensuring that theirs were sold faster than anyone else's (aside from those that sold in to the buy walls). This sparked my interest because people seemed to be getting upset with it, but I am used to having to deal with bots in games and figured that it was a great way to get fast, easy coins. Someone else had beat me to it, though, and I will be sharing the method here for anyone else in the next section.

Tricking Exchange Bots

If you find an exchange bot, there is a nice trick that will usually work (although it is not guaranteed so use it as your own risk!). Since the bots always undercut the lowest seller, if you see this happening on a coin that has a pretty nice spread you can set up buy orders just above the lowest buy, then inch down the selling bot by listing up a coin, or sometimes even a fraction of a coin. This will sometimes cause the bot to list all of their coins just below yours (even though technically you were not trying to sell out) and then you can snag them at a low price. This does not always work, but in the case of Worldcoin's recent situation it most definitely did. If nothing else, you only lose a small amount while you could gain a lot in return.

Why Are Exchange Bots Used?

There are multiple reasons why exchange bots are used:

  • Automatic buying and selling (you can set the bot to buy at a certain price and sell at a certain price and allow it to keep making the separate orders as it fills up and drops off)
  • Automatic conversions (in the case of Middlecoin, a script is used to automatically list all mined coins on an exchange)
  • Making more efficient decisions on trading (as the bot does not make the same mistakes we might after staying up watching for hours)

Essentially it all boils down to the ease of use and helping cut down on human error. The more mistakes we are able to make, the more we probably will. Bots, on the other hand, are designed to do the tasks we give them and they will (as long as they are programmed properly) not deviate from that plan and they will not let their brain try to get them to do something different.

Do They Hurt Exchange Rates?

This is a hard thing to answer, really. I think that their effect, if any, is pretty much negligible. There are people that do “day trading” as it is, where they are watching the prices like a hawk and both buying and selling constantly to maximize profit. All the bots do is help automate this, but they have to be set up properly to do so and that means it still requires a pretty solid understanding of how the market works and how someone can take advantage of that.

If it does affect the exchange rates, I would say that it turns them towards being a buyer's market. The bots will often drop the price slightly, but they will almost always bounce right back up. So people who are keeping on top of this can exploit the bot's work and take all of the rewards, without all of the risk that is involved.

How to Spot a Bot

If you want to try and catch bots, it takes a bit of attention to detail. What you are looking for is someone that, if you bid just below them, will instantly undercut you again. If this happens a few times in a row, you can assume they are a bot. If it takes some delay before they make any decisions, it could be a real person that is trying to day trade, which will mean that they are much more aware of what is going on and will not be able to be exploited as easily (if at all).

Conclusion

There are bots on all of the major Bitcoin exchanges, but they are usually nothing to worry about. While they do grant people the advantage of being able to trade 24/7 and avoid things like fatigue or second guesses, the people who can utilize them properly are those that would be day trading anyways. Being that the market as a whole is what determines how much each coin is worth, having one person out there undercutting likely is not going to make much of a difference in the pricing long term. While there may be some short term drops, they should always bounce back up if the market is good for it!

Exchanges


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