How to choose the right cryptocurrency exchange for your trading bot

February 08, 2023 08:11 PM AEDT | By Jon Balkaran (Guest)
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Being the "wide-open," fast-paced, and never sleeping sector that the cryptocurrency industry is, many traders are turning to automated trading bots for extra help keeping up.

A crypto auto trading bot can be a tremendous tool that helps traders improve their performance. However, a few fundamental "must haves" exist for a crypto auto trading bot to operate efficiently.

Automated trading bots require a cryptocurrency exchange to get the prices and place orders - without one, there would be no marketplace for them to place traders - so it is essential to choose the right one.

Here are some tips to help you choose the suitable cryptocurrency exchange for your trading bot.

Evaluate Fees, Commissions, and Spreads

The fees, commissions, and spreads (maker, taker) you pay on each transaction can make a big difference in your trading profits, mainly depending on the frequency at which you trade.

Most exchanges offer a tiered fee program where the volume of trades generated through your account every month determines the number of fees you pay on transactions - the higher volume of trades placed, the bigger the discount you receive.

Make sure to compare the fees, commissions, and spreads of different exchanges to see which one offers the best overall "package" that fits your current trading style.

A Look at Liquidity

Liquidity is an essential factor to consider when choosing a cryptocurrency exchange. If an exchange doesn't have enough liquidity, it could lead to slow order execution and wider spreads, which could significantly impact your trading profits.

This does not usually pose to be a problem except for the scenarios when dealing with newer and or less established exchanges. Most top exchanges in this industry have been established for years.

Look for exchanges with a high volume of trading activity to ensure that your orders will be executed quickly and at a reasonable price. You can find an exchange's liquidity on many websites, such as those that offer prices of coins and market caps, etc.

What Currencies are Available?

When choosing a cryptocurrency exchange, it is vital to ensure that the exchange offers the currencies and pairs you want to trade.

There are thousands of coins, and at this time, it may be setting too high of expectations to think that any one exchange can offer them all. With that said, you may have to do a bit of settling depending on how determined you are to trade specific coins.

Remember that some exchanges have higher trading fees for specific cryptos, so just because an exchange offers your crypto pair of choice, comparing its structure to other exchanges would still be a wise decision.

Understand the Security Features

Security is one of the most important factors to consider when choosing a cryptocurrency exchange. Make sure to research the security features of any exchange you are considering, and look for features like two-factor authentication, encrypted storage, and secure data transfers.

This also includes what may arguably be the most important factor, which is ensuring that the exchange is compatible with your bot and vice versa.

For example, if you use an API-integrated bot, you'd want to ensure that the exchange allows for external API integration.

Another important security feature, which doesn’t necessarily have to do with software, is POR or proof of reserves. This is more of a financial security measure, where a third-party audit is done on the exchange to ensure their on-chain holdings directly match their client’s assets listed on their balance sheets.

This instills confidence in traders as it proves the exchange is solvent and not mishandling the client's funds. Of course, diversification is always good, so spreading your capital across multiple exchanges instead of holding it all on one, maybe a great idea.

Choose a User-Friendly Exchange

The user experience is also essential when choosing an exchange. If the interface is difficult to use, you may invest more time than desired in learning the ins and out's of the exchange.

Look for cryptocurrency exchanges with a user-friendly interface and good customer support to help you with any issues. This includes a FAQ, articles, tutorials, and other relevant resource sections.

Reading online reviews can be a great source of social proof and shed adequate light on users' past experiences that may help answer your questions.

At The End of the Day

Choosing the right cryptocurrency exchange for your trading bot can be a bit of a task at first. However, the reward and pay-off for finding an exchange where you can call home (at least for the time being) are unmeasurable.

Take the time to evaluate the fees, commissions, spreads, liquidity, security features, currencies, and user-friendliness of different exchanges to ensure you are getting the best one.

By following these tips, you should be able to find the proper cryptocurrency exchange that compliments your automated trading bot and your trading preferences.

Risk Disclosure: Trading in cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory, or political events. The laws that apply to crypto products (and how a particular crypto product is regulated) may change. Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading in the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. Kalkine Media cannot and does not represent or guarantee that any of the information/data available here is accurate, reliable, current, complete or appropriate for your needs. Kalkine Media will not accept liability for any loss or damage as a result of your trading or your reliance on the information shared on this website.


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