Best Crypto Bot Trading Platforms in 2020

The slow maturation of the 24/7 global crypto markets, the rapid development of new technology, and much-improved crypto user experiences are some of the converging trends driving the growth in automated crypto trading platforms. In global financial markets, approximately 75% of trading is algorithmic, and the crypto markets are no different. The last 18 months have seen a rise in the number of automated crypto trading platforms that use bot-driven cryptocurrency trading strategies.

These best crypto bot trading platforms combine the advantages of bots (automated, algorithmic 24/7 trading) with multiple customization options, user-friendly interfaces, and the ability to maintain some human oversight.

That gives today’s crypto traders the ability to create nuanced, 24/7 trading strategies that can be adjusted and refined as needed. There are now a wide variety of platforms that cater to the different needs of the diverse crypto trading and investor community. Some platforms are designed for experienced traders and offer a range of trading bots that can be linked to any indicator and connected to the leading crypto exchanges via API. These platforms allow traders to create complex automated strategies that can be backtested against historical crypto market data.

There is also a new wave of platforms designed for less experienced traders, and those crypto investors seeking to generate a return from their crypto assets without the stress of having to make trading decisions themselves. These platforms offer copy trading and social trading, and automated crypto trading based on algorithmic strategies. With the growing interest in DeFi and the yield farming phenomenon, crypto users are now able to put their assets to work to generate a return. Whether you are a passive investor, or an active trader, there are many choices available, all with their own risk profile.

This article will look at some of the most popular crypto trading bot platforms on the market.

What is a crypto trading bot?

A trading bot is a piece of software that uses an API to interact with a user’s exchange account and automatically execute trades based on its interpretation of market data. The bot will execute a trade when market conditions meet a set of predefined and programmed criteria. Trading bots can interpret and combine traditional market signals such as volume, orders, price, and time, with technical analysis signals such as moving averages, Bollinger bands, and the Ichimoku Cloud, and increasingly, with other factors such as social media sentiment.

Should I use a crypto trading bot or a platform?

There are many simple, off the shelf automated crypto trading bots available for purchase, subscription, or free download. Their value proposition is simple. They offer traders the ability to automate their trades and then wait for the bot to make a profit. This is not necessarily always the case, however. While these bots can be connected to a user’s exchange account and can execute buy/sell orders automatically, the user has limited control over the bot’s strategy making them less useful for advanced traders. These bots present a ready to go ‘black box’ solution with few options for further customization.

The user has to rely on the programming skills and strategy of the often anonymous creator. The quality of these trading bots varies from good, to fair, to poor, to the many outright scams. Identifying which crypto trading bot has the potential to work as intended, which are able to turn a profit, and which are failed experiments, or worse, are designed to steal the user’s money is a daunting task. While a free crypto trading bot sounds like a good deal, free doesn’t mean quality, and what the best crypto bot is, will vary according to individual user’s needs and experience.

Another issue is that off the shelf bots are limited in scope and don’t consider all the factors that can make a market move. They can be caught out by a variety of unexpected factors such as a flash crash, exchange hack or major news event. Events of this kind make the crypto markets the most volatile on earth, and without human supervision, these bots can make unprofitable trades that result in user losses. As a result, in 2020, the trend is towards customizable trading platforms that give traders granular control of their trading strategy with automated rebalancing strategies to protect profits. These platforms offer a range of other features including social integrations, back-testing, paper trading, a community, support, copy trading, portfolio tracking, auto-portfolio rebalancing and more.

Reasons to consider using a trading bot platform

Individuals can transact in today’s global digital economy 24/7. Unlike traditional markets, the crypto markets never sleep. For traders this presents a dilemma — nobody can watch the market all the time. Crypto market participants will be familiar with the thrill of waking up to a portfolio gain, and the reverse is equally true — traders with open positions risk waking up to a negative news event that has adversely affected a position leading to a loss. Some of the advantages of using a crypto trading bot platform include:

Save time

This is the number one advantage that automated trading and crypto bots provide: efficient, rules-driven trading without having to watch the markets. Even active crypto traders are sometimes unable to dedicate time to the markets. Automated trading strategies provide the means to generate trading profits without being tied to a screen.

Find new opportunities

A bot is always online and can relentlessly hunt the markets for an opportunity to make a profit 24/7. The volatile crypto markets can change very quickly, and bots are always ready to exploit a change in market conditions. Depending on what parameters have been set, once the bot sees the opportunity, it will execute.

Take the emotion out of trading

Traditional day trading is one of the most stressful occupations on the planet. The volatility in the crypto markets amplifies this stress even more. Crypto trading can be a rollercoaster of emotions, characterized by extreme highs and lows. Humans are emotional creatures and prone to many biases that affect decision making. This can lead to costly miscalculations in the high-stakes world of crypto trading. A rules-based, crypto bot trading strategy can help protect a trader from their own worst enemy – themself.

Generate income

Unlike stocks, crypto-assets don’t pay dividends. From an investment perspective, crypto-assets can be viewed more like a commodity. However, in a bear market, there is no reason to hold on to a commodity as it doesn’t deliver a return aside from price appreciation, which is unlikely in bearish conditions. Trading bots can provide crypto holders with a passive income, by leveraging their crypto assets via trades. This income stream is not as safe or reliable as compounding dividends, but it is one of the few options available to crypto investors who intend to hold their assets for the long term.

If a trader can create an automated trading strategy that performs well over a consistent period, it may generate a long-term passive income. Copy-trading platforms allow investors with no trading experience to ‘copy’ the trades of professional traders, or to copy pre-set algorithmic trading strategies run by the platforms.

Advantages to trading the crypto markets vs stocks

  • Crypto markets are open 24/7
  • Low barrier to entry
  • Anyone can join an exchange and start trading
  • You can start trading with $100 or less
  • Volatility means you can make quick profits (or losses)

Trading is often compared to poker, and in poker, there’s a concept called ‘Table Selection’. This simply means a player can choose whom they play against. If the goal is to make a profit, given the choice, a rational poker player will choose to play at a table of weaker, less experienced players. Trading in the traditional financial markets is like sitting down at a table of professionals. It’s possible to win but you’ve got to be one of the best in the world. Cryptocurrency traders, however, are generally less experienced. There are some professionals, but the majority are retail investors.

This is another way of saying that crypto traders are less sophisticated than forex traders. This uncomfortable truth, combined with several factors unique to the crypto markets, has the potential to give savvy crypto traders an edge. Combine that edge with a backtested, algorithmic trading strategy (a crypto trading bot), and traders will give themselves the best chance to succeed. The crypto market is often described as the ‘wild west’ because the market is largely unregulated. Every country and exchange has different requirements, and there are no global, standardized regulations. There is not yet an agreed-upon model for the reliable valuation of crypto assets. This regulatory uncertainty, the possibility of market manipulation, and ongoing price discovery create the trader’s best friend – volatility.

What are the risks of Crypto Trading Bot Platforms?

Trading bots and algorithmic trading strategies are simply a tool and there is no guarantee of profitability. There are also a number of risks associated with trading bots and automated platforms. It’s important to understand that trading bots are generally designed for traders, not investors, and some are not appropriate for people new to crypto or new to trading.

Are you an investor or a trader?

If you’re a casual investor intending to buy and hold crypto assets, a complex black-box trading bot strategy may not be appropriate. Investors with no trading experience can opt to ‘copy’ other traders or use existing algorithmic strategies on a trading platform. While platforms vary in their complexity, users with some financial literacy, analytical skills, and trading knowledge will have an advantage over those that don’t.

Beware of scams and hidden fees

Unregulated, emerging boom markets and new technology tend to attract bad actors. Some crypto trading bots are designed to exploit unsophisticated traders by stealing personal data and funds. Do your due diligence. How? Ask yourself how credible is the team that created the bot or platform? Do they have a public profile? A support team? Can they be contacted? Do they have a community of satisfied customers?

Are the fees clearly explained and easy to understand? Are there any hidden costs?

A bot is just another tool in the trading tool kit

While you can set and forget most cryptocurrency trading bots, the best solution is a combination of automated trading with ongoing human supervision. Crypto market conditions can change extremely fast so it’s important for traders to ensure they are constantly adjusting the parameters of their strategy to reflect this.

There are unknown unknowns

All trading is risky and the volatility in the crypto markets makes crypto trading the riskiest of all. Bots can be buggy, they can suffer from poor programming, and they can be caught out by unusual market conditions such as a flash crash or a major news event. Expect the unexpected.

Crypto trading bot strategies

Automated trading bots are designed to be configurable to allow for a wide variety of trading strategies. From a simple trend-following strategy to more complex strategies that evaluate a wide range of data points, today’s bots are highly customizable. Common strategies include:

– Trend following

A trend-following strategy aims to identify the directional movement of an asset and gain from the momentum of this movement. The strategy will go long when the asset is trending upwards or go short when the asset is trending downwards.

– Arbitrage

Arbitrage trading looks to exploit the difference in the price of an asset between different markets or exchanges. As a new and emerging market, the spread between different crypto exchanges can vary, though this has tightened as the market grows.

– Market making

A market making strategy is based on continuously buying and selling crypto assets (on both sides of the order book) to capture the spread between the buy and sell price as the price fluctuates.

– Copy trading

Copy trading is a growing trend that allows users to automatically copy another trader’s trade. The large Forex and crypto trading platform and community eToro has helped popularize copy trading. Copy-trading often involves a social community and gamification elements such as a leaderboard. As the copy trading user experience evolves, it is now possible to copy other traders at the click of a button. The rise of Defi and the emergence of non-custodial platforms such as TokenSets means it is now possible to copy other traders or take advantage of algorithmic trading strategies without giving up control of your private keys.

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