Cryptocurrencies are becoming more mainstream by the day, with investors from all walks of life interested in the massive returns they can bring.
A recent study conducted by the University of Chicago found that 13% of Americans either bought or traded a cryptocurrency in the last year. That’s compared with 24% of the population that invested in traditional stocks.
The challenge for investors, though, is cryptocurrency can be just as volatile the other way, too. In mid-July, bitcoin stood at roughly $32,000, almost half of what it was just three months earlier.
True, the July price still represented a 10% increase year-to-date, but it would represent a huge loss for investors who didn’t buy in until after April’s high.
Astute traders have learned that approaching cryptocurrency investments the same way as stock investments just won’t work. Instead, there needs to be a much more analytical approach that outlines trading opportunities no matter the cryptocurrency’s price.
Enter algorithmic trading.
Using advanced computer technology, algorithmic trading automates the process of trading cryptocurrencies. People program bots to execute cryptocurrency trades after certain conditions in the market are met. Dan Calugar explains this could be some mixture of volume, time, and price.
Algorithmic trading uses complex formulas and other mathematical models to allow experienced human investors to guide the investment strategy. In other words, it’s data-driven trading, not trading dictated only by computers.
Algorithmic trading isn’t new, either. It’s been used at large financial institutions and hedge funds for years, allowing them to wade through all the noise to find the valuable investments that matter.
The reason why it’s become so popular in cryptocurrency trading is it helps bring stability and clarity to what can be an unstable and unclear market. The bots used in algorithmic trading help professional traders make the correct decisions that boost value for the investors, rather than the other way around.
Bots can respond to market changes instantly, much quicker than any human could do on their own. This allows people who buy into algorithmic trading as a tool for investing in cryptocurrency to succeed in this uncertain world due to the COVID-19 pandemic.