Bots are critical a critical tool for retail investors

Published at: Jan. 19, 2023

The thing about the future, where robotic super traders battle over micromovements in stock price, is that it’s already here. With access to algorithmic trading bots a click away, we could be seeing the fall of human investors and the triumph of artificial intelligence.

Algorithmic trading bots are programmed to buy and sell when they detect preprogrammed conditions and can execute pretty much any trading strategy. They have been used by professional traders for two decades, and these firms have taken them into the crypto markets too.

Now, a new crop of accessible crypto trading tools has hit the market, made with retail clients in mind. I know — I have built several of them. Currently, I’m working on a system that helps neophyte investors find their own risk preferences based on their previous trading and investing data.

The uptake of these bots could have an outsized impact on the crypto market going forward, given that retail accounts for up to a quarter of crypto trading volume. And what is most interesting here is that this could signal a democratization in market access and participation.

If this is to happen, then access to trading bots and other specialized tools must be combined with open education. Re-creating the gated system where only “accredited” investors are allowed access to the crypto markets while everyone else is sidelined due to lack of education and capital is elitist and regressive.

It’s unfortunate that financial education isn’t taught in schools, leaving many people at the mercy of sophisticated professionals and outright scammers. Trading bots, combined with proper education, is one step toward leveling the playing field.

This technology provides a type of experiential education for amateur traders, allowing them to feel the movements of the market using small positions and an automated strategy. They can experiment with different bots to learn about different strategies such as arbitrage, dollar-cost averaging and trading futures.

Furthermore, those who gain expertise in trading bots — for example, using several bots at once representing a hedged or diversified strategy — could outperform experienced players. After all, no human can constantly monitor crypto’s 24/7 markets, but a bot can.

In fact, trading bots thrive in the 24/7 crypto markets where they can scalp arbitrage opportunities and ride the waves of high volatility. No human can keep up with these markets and will undoubtedly miss opportunities that a bot can take advantage of.

However, a trader still needs to make crucial decisions that will affect how a bot performs, such as choosing the asset and the price range for the bot to buy and sell. So, while bots are a great tool, they are not risk-free.

The more deeply traders understand entry and exit points and timing trades, the better they will set up their bots. However, most users don’t need expert-level knowledge — they just need to understand why setting up a long-term grid bot on a microcap that has just pumped 200% is a bad idea.

Another advantage is that bots take the emotion out of trading. Even professional traders struggle to maintain a cool, calculated mind with large sums of money on the line.

Some may end up “marrying their bags” and holding when they should sell. This kind of behavior becomes “dumb money” — trades that react emotionally to the swings of the market instead of reason prevailing.

Trading bots don’t suffer this emotional handicap. They execute their strategies in a calculated vacuum. Neophyte traders could find a lot of value in these instruments on their journey toward becoming independent traders and investors.

Previously, professional traders honed their skills as part of a job. But with the advent of AI trading, retail investors now have a chance to catch up. As the specter of inflation haunts large economies around the world, it’s essential that the latest investing tools are accessible to everyone as a means of access and education so that ordinary people can best preserve their wealth and create economic opportunities.

Bill Xing is the head of financial products at Bybit. Prior to joining Bybit, he co-founded Panda Analytics, a crypto indexing and trading automation firm. He holds a master's degree in financial engineering from the University of Illinois at Urbana-Champaign.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.