Should You Be Using Automated Crypto Buying?

Curitiba, PR, Brazil - June 16, 2021: Ethereum coin on a circuit board setup with LEDs representing the high technology involved in the cryptocurrency network.
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Automated crypto trading is a way to let a computer program manage your cryptocurrency investments. Following parameters that you set, the automated system will perform buys and sells as many times as required, at any time, while you go about your daily life. Algorithms you can set for the system include buy and sell price points, various technical indicators or simple rebalancing parameters. While this all sounds like an easy way to get invested and make money in crypto, there are both pros and cons to setting up this type of trading. Here’s a look at just a few of the major things you should consider before using an automated crypto trading program. 

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Pro: Crypto Market Is Open 24/7

Unlike the stock market, the crypto market is open 24 hours a day, seven days a week. Since even the most dedicated traders must make time for sleep, family and other obligations, using an automated trading system can fill in the gaps for when you can’t be actively monitoring the market. For example, if you decide to go on vacation over a weekend and won’t have internet access, your trading algorithm can still track the market for you and prevent you from missing any profitable trades. 

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Con: Your Bot Could Be Trading You Into Oblivion While You Sleep

While the idea of a trading bot monitoring your crypto investments while you sleep can be attractive, there’s always the risk that things don’t quite go as planned. You may wake up one day to see that your trading program has made multiple buys and sells and actually lost you money while you were sleeping. Many investors are uncomfortable handing over real money to an automated system that can generate real-world losses or even margin calls for which they’ll be responsible.

Pro: Movements in the Crypto Market Can Be Rapid

Cryptocurrency prices are still fueled to a large degree by speculation. As such, rumors and innuendos can change prices rapidly. An automated trading system can help prevent you from getting whipsawed by major price moves that may occur before you have time to react, or even when you simply aren’t paying attention. For example, if you’re at your job or out with friends and a crypto jumps by 30%, your trading system may automatically bag that profit for you before it vanishes. As no investors can watch crypto prices 24/7, an automated trading system can act as your eyes and ears to not only help prevent losses but also capture gains.

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Con: Your Bot Could Be Creating Huge Tax Liabilities

While an automated trading system can offer many benefits, it’s not always the best choice when it comes to tax efficiency. Although you can program a trading bot to trim losses and take gains, it’s hard to match taxable gains and losses in an automated system. Typically, a trader will have to take a more hands-on approach when it comes to limiting the taxable consequences of cryptocurrency transactions.

Pro: Automated Trading Removes Emotion From the Equation

As a trader, one of the worst things you can do is to get emotional about your trades. Emotional trading leads to bad decisions, such as selling right when a crypto is about to bottom out in price or buying in the midst of a speculative frenzy. Automated trading completely removes emotion from the equation, as your trading bot will only buy or sell based on rules and instructions, not feelings or emotions.

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Con: You’re Turning Over Your Investment Strategy to a Robot

Automated trading bots can certainly make life easier and more convenient for crypto traders. But at the end of the day, you’re handing over your investment account to a machine. Although you can program a trading bot to take profits, look for buy points and implement other strategies, it can only be as successful as your instructions. In other words, as the old computer adage says, “garbage in, garbage out.” A trading bot doesn’t have the human ability to adapt to situations or make counterintuitive judgment calls based on additional information. Over time, it’s likely that an automated trading system will make mistakes or miss opportunities, as it can’t possibly be programmed to account for every outside variable. 

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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