Articles related to bitcoin automated trading as well as other cryptocurrencies

Algorithmic Trading – A complete guide

What is algorithmic trading?

 

Algorithmic Trading in simple words is to use computer programs to automate the process of trading (buying and selling) financial instruments (stocks, FX pairs, Cryptocurrency, options). These computer programs are coded to trade based on the input that has been defined for them. Inputs could be based on the aimed strategy to take advantage of different market behaviors such as the specific change of a price could trigger the algorithms to make some specific trades, or other factors like volume, time or sophisticated algorithms that trade based on trading indicators. 

Algorithmic trading strategies and backtesting

 

Almost all trading ideas are first converted to a trading strategy and coded into an algorithm that then comes to life and ready for execution. Most algorithmic trading strategies are created on the basis of wide trading knowledge on the financial market combined with quantitative analysis and modeling, later the strategies are given to quants programmers who will convert the strategy to executable algorithms. 

 It is widely common to perform testing on trading strategies before they go live on the market, this practice is known as Backtesting. This is where the algorithm is being tested on historical data to check the algorithm and apply further modifications. 

The main idea behind Backtesting is to evaluate the performance of the algorithmic strategy to see if the strategy is behaving the way it was programmed and check the profitability of it using real market data. 

For more sophisticated algorithms and firms with more advanced tools, algorithmic strategies perform on what so-called paper trading, where the strategy performs virtual trading without committing any commercial value (trading without money). 

The most popular programming languages used to write algorithmic trading strategies are JAVA, Python, and C++. Matlab is also a good tool with a wide range of analytic tools to plot and analyze algorithmic strategies. 

Who uses algorithmic trading?

 

By far the most common fans of performing trades algorithmically are larger financial institutions as well as investment banks alongside Hedge Funds, pension funds, broker-dealer, market makers. 

 

Some well-known algorithmic strategies:

 

On a broad sense most commonly used algorithmic strategies are Momentum strategies, as the names indicate the algorithm start execution based on a given spike or given moment. The algorithm basically detects the moment (e.g spike) and executed by and sell order as to how it has been programmed. 

One another popular strategy is Mean-Reversion algorithmic strategy. This algorithm assumes that prices usually deviate back to its average. 

A more sophisticated type of algorithmic trading is market making strategy, these algorithms are known as liquidity providers. Market Making strategies aim to supply buy and sell orders in order to fill the order book and make a certain instrument in a market more liquid. Market Making strategies are designed to capture the spread between buying and selling price and ultimately decrease the spread. 

Another advanced and complex algorithmic strategy is Arbitrage algorithms. These algorithms are designed to detect mispricing and spread inefficiencies among different markets. Basically, Arbitrage algorithms find the different prices among two different markets and buy or sell orders to take advantage of the price difference. 

Among big investment banks and hedge funds trading with high frequency is also a popular practice. A great deal of all trades executed globally is done with high-frequency trading. The main aim of high-frequency trading is to perform trades based on market behaviors as fast and as scalable as possible. Though, high-frequency trading requires solid and somewhat expensive infrastructure. Firms that would like to perform trading with high frequency need to collocate their servers that run the algorithm near the market they are executing to minimize the latency as much as possible. 

Algorithmic Trading Software

 

Based on the given use case like the size of orders, customizability and experience level there are options available for algorithmic trading software. Larger firms like hedge funds, investment banks or proprietary trading firms use rather more tailored custom-built and advanced tools. When it comes to more individual traders or quants with less capital to trade they will rather use more readymade algorithmic strategies, some on the cloud, some stand-alone. 

The most common features of algorithmic trading software are ways to analyze profit/loss of an algorithm on a live market data. There are different protocols available to get, process and send orders from software to market, such as TCP/IP, webhooks, FIX and etc. One important factor for this data processing from receiving to processing and pushing order is measured with latency. Latency is the time-delay introduced to the movement of data from points to points. Considering the changes in price in the market the lower obtained latency the better software reacts to market events hence a faster reaction. 

Backtesting is another useful feature that should be included in algorithmic trading software, usually, this software allows traders to apply their algorithmic trading strategies and test it with historical data to evaluate the profitability of their strategies. 

Pros and cons of algorithmic trading

 

Just like any other choice, there are pros and cons to using algorithmic trading strategies and automating the process of trading. Let’s get down with the pros. Based on many expert opinions in investments human emotions could be toxic and faulty when it comes to trading, one perhaps most acknowledged pros of Algorithmic Trading is taking away human emotions and errors out of trading.

Another huge advantage of algorithmic trading is the increase of speed in action of execution to the market as well as possibilities to test strategies using Backtesting and paper-trading in a simulated manner. Testing algorithmic strategies determine the viability of the idea behind trading strategies.

Another vastly discussed advantage of algorithmic trading is risk diversification. Algorithmic trading allows traders to diversify themselves across man accounts, strategies or market at any given time. The act of diversification will spread the risk of different market instruments and hedge them against their losing positions. 

Making trading automatically using algorithmic trading decreases the operational costs of performing large volumes of trade in a short period of time. 

There are also a few other advantages such as automation in the allocation of assets, keeping a consistent discipline in trading and faster execution.

Now let’s get on with some of the cons of using algorithmic trading. Perhaps one very discussed issue with using algorithmic trading is constant monitoring of the strategies which to some traders could be a bit stressful since the human control in algorithmic trading is much less. Though it is widely common to have lost control features included in strategies and algorithmic trading software (automated and manual ones). 

For most individual traders having enough resources could be another disadvantage of algorithmic trading. The algorithmic trading itself reduces the cost of executing large orders but it could come expensive as it requires initial infrastructure such as the software cost or the server cost.

 

Pros Cons
Emotionless trading Needs for monitoring 
Less error Technological infrastructure 
Higher trading speed Programming skills required for updating strategies
Backtesting and paper trading
Risk diversification 
Lower operational costs 
Consistent trading discipline 

 

Algorithmic trading in Cryptocurrency

 

Unlike more mature instruments like stocks, options or CFDs, the Cryptocurrency market is quite volatile. Typically higher volatility leads to more frequent jumps in the price of instruments, higher and lower. Hence, some professional traders find this amusing and opportunistic to make the most of the profits.  

Generally, for Cryptocurrency traders, there are plenty of cloud-based solutions using trading bots, though for very professional and institutional traders this may not flexible enough. There are few algorithmic trading platforms for cryptocurrencies which can utilize the need for more sophisticated and institutional traders. 

 

Algorithmic Trading Trends:

 

On average 80% of the daily traders across the US are done by algorithmic trading and machines. Though the volume of the algorithmic trading can change based on the volatility in the market. According to J.P. Morgan, fundamental discretionary traders are accounted for only 10% of trading volume in stocks. This is the traditional way of checking the companies business performance and their outlook before deciding whether to buy or sell a position. 

 

The growth in the number of algorithmic trading since last year comes close to 47% and there is 41% growth in the number of users executing their trades algorithmically. Mobile also plays an important role in the tools provided there is around 54% growth in trading FX algorithmically using mobile devices. 

New technologies, Artificial Intelligence, Machine Learning, Blockchain:

 

According to another J.P. Morgan research, Artificial Intelligence and Machine learning are predicted to be the most influential for shaping the future of trading. Based on this analysis Artificial Intelligence and Machine Learning will influence the future of trading by 57% and 61% in the next three years.  

Interestingly this report states that Natural Language Processing alone will count to 5% of the change in the next 12 months and up to 9% in the next three years. 

J.P. Morgan report shows that around 68% of the traders believe that Artificial Intelligence and Machine Learning provide deep data analytics. Around 62% believe that Artificial Intelligence and Machine Learning optimize trade execution and 49% of traders believe that Artificial Intelligence and Machine Learning represents an opportunity to hone their trading decisions. 

The same report indicates that Blockchain within the next 12 months will influence the trading up to 9% and 19% within the next three years. Within the same report, the usage of mobile trading applications is to influence the trading market up to 28% within the next 12 months and 11% within the next 3 years. 

Bitcoin and Arbitrage: hand in hand

Bitcoin

What’s BITCOIN?

Bitcoin is known as virtual money, but a much better term is cryptocurrency. Unlike actual cash, there are not any coins or paper money formally produced. No government entity determines how much and when to discharge it in the world. Bitcoins are made digitally by individuals as they solve complicated math problems with their own computers. In most senses, it’s truly decentralized.

Among the intriguing things about the virtual money is that all trades are saved and printed publicly. The money is traded by means of a huge peer-to-peer network which encompasses the whole globe. When there are not a great deal of rules concerning Bitcoin, you will find a few, and this also assists with creating bitcoins a real currency that functions just like “normal money”

 

BITCOIN EXCLUSIVES

Next, we are going to have a look at a few of the ways which Bitcoin is different than conventional currencies. It is these differences which make Bitcoin this kind of potent potential. Nobody individual, government or corporation controls the Bitcoin network. This is not the sole difference, but so let us peek at some things which are exclusive to Bitcoin.

Bitcoin vs. Traditional currencies

  1. Bitcoin is decentralized

As it functions as a peer-to-peer system, all trades and confirmation of trades are done by several folks in the network.

  1. Bitcoin is virtual currency

Another thing which sets Bitcoin aside from conventional money is the fact that it is virtual. Rather, all bitcoins exist within virtual space. As a consequence, that you can not visit an ATM and withdraw bodily cash. Conventional currency which may be published when governments choose to publish more. To distribute the production of bitcoins being introduced into the planet, the amount that are made by “mining” will half each four decades. It follows individuals will continue to have the ability to make them before the year 2140. At that moment, no fresh bitcoins will be generated and the present design will enjoy the advantages of lack – i.e. getting more precious.

So as to save the block string of trades in consecutive Purchase, Bitcoin trades aren’t reversible. Furthermore, a Bitcoin trade can take ten minutes or longer to confirm. That is different compared to other currencies that normally procedure trades in seconds and allow for turning a fee to a credit or debit card.

  1. Bitcoin isn’t ubiquitous

In many areas, you’re going to have the ability to exchange your countries money for invoices of the country you are visiting. And regardless of where you go on the planet, you are likely to have the ability to exchange your money for services and goods. Bitcoin has not yet been adopted by the entire world at large. This will change in years to come as more companies start to take Bitcoin for repayment, but for now it is a gap that matters to lots of individuals.

 

Good and Poor of Bitcoin

As it is decentralized and normally has reduced prices for trades, a lot of men and women have started to take note and become enthused about this and other cryptocurrencies.

Another thing to notice is that a few People today worry about that controls the Bitcoin network. The fact is that because it utilizes peer reviewed technology, no 1 individual or business can have the Bitcoin network. This might seem frightening to some while it is exciting and revolutionary to others.

The demand for all variants of Bitcoin applications to be harmonious and be able success, most people that are involved realize that this and also have worked together to enhance the Bitcoin applications and community substantially in just a couple of short decades.

And that just might be what is equipped to assist Bitcoin grow much faster across the world. This may prove to be the fiscal system which brings the world together.

How Can BITCOIN WORK?

The basics you should know

Let us start by taking a look at the different items you want to get a cryptocurrency working. We are going to begin with the fundamentals and then move to more details about what you will have to begin.

The transaction – the very first thing that you want to think about using a digital currency is the trade – that the true exchange of value from 1 individual to another. Though this might seem easy, in several ways it can be simple to devise a trade to attempt and cheat the machine. With physical money, transactions are regulated by banking associations that affirm they are not forged and therefore are unique.

A serial number – to prevent people seeking to forge trades or reuse them with virtual money, you require a means to connect a special serial number to every individual and each trade too. Bitcoin does so by utilizing a personal and public encrypted secret. These hashes are utilized to create certain transactions are not replicated in the system and there is no way to cheat the system. When Bitcoin was set up, it had been understood that banks might be taken from the image entirely if a peer reviewed network was produced to confirm the transactions between two things. This decentralization of fiscal transactions is among the largest reasons so many clever men and women are becoming excited about Bitcoin.

Bitcoin Mining – The following bit is necessary to create Bitcoin work. When it’s too simple for trades to be confirmed, folks may program robots to flood the system with verifications, which makes it tricky to really check the transaction. To fight this, the notion is to make it computationally tough to check the transaction. This assists battle against the bad guys while at precisely the exact same time offering a means to reward individuals who provide up computing ability to check the transaction. The computational mystery needs to be tough enough to make it impossible to hack on simple enough to still enable individuals to resolve in a reasonable period of time.

Create a private and public key that’s unique for you. This can be used to move bitcoins for you also as enable you to move bitcoins to other folks in the network.

Speech if you would like to get BTC from somebody else on the community. At precisely the exact same time, you may use a different Bitcoin address created so as to cover services or goods.

The following step is a trade being created when the real swapping of BTC happens between a seller and buyer. This can be added to the block series where others are going to check the trade (by solving the mathematics problem) and publish particulars of this trade publicly.

 

The Way to OBTAIN BITCOIN

Recognizing how Bitcoin functions may be intriguing to some, but there are actually a couple of ways that you can lawfully get bitcoins – regardless of where you reside on the planet. Provided that you have an online connection as well as the Bitcoin software installed, then you are likely to have the ability to start using this digital money. The best news is that it is really rather simple to start to develop your Bitcoin wallet should you’ve got a little spare time.

First, It Ought to Be noted that it is really tough to buy bitcoins It is quite simple to issue a chargeback on charge card. If a person purchases BTC using a charge card then reverses the fee, it is really hard to prove to the credit card companies the trade actually occurred.

It is important to keep in mind that the worth of a single BTC is quite volatile at this time, which means you probably don’t need to spend everything you’ve got in this digital money. At precisely the exact same time, the prevalence of Bitcoin is increasing across the world and a number of people happen to be getting wealthy by building up big heaps of bitcoins virtually through method and means we will explain below.

Regardless of which kind of computer you are running, there is likely to become an installer app to get you up and running in almost no time in any way. Many men and women find it takes about 5 to 10 minutes to acquire a Bitcoin customer installed and attached to the community.

Make certain that you take your time to discover a client you are familiar with using. Most are extremely similar, but a few have a few additional bells and whistles which may make it much easier for you to begin.

Even though you might have the ability to discover a service which delivers a high degree of safety, it is not exactly the exact same level you would have if you set up the applications in your computer in which you have full control. Coinbase is among the very popular online Bitcoin wallets today.

Whichever you decide on, once it is set up the next step is simple. You will Create a private and public key. This is the Bitcoin speech which will enable folks to send BTC to your accounts. As soon as you’ve got your own Bitcoin wallet installation, you have a couple of distinct choices about the best way best to accrue BTC on your wallet.

Bitcoin Exchanges

Bitcoin exchanges were not about when Bitcoin first came out, but they are now an essential component of the way the entire Bitcoin ecosystem functions. There are exchanges which have Bitcoin among other digital currencies on the internet in addition to marketplaces that deal exclusively by BTC trades.

It is intriguing to note that some of those marketplaces will maintain a balance For you – out of your Bitcoin wallet – to be able to make it simpler to conduct transactions. Deciding on the ideal Bitcoin exchange is important when you would like to remain safe rather than risk losing your BTC equilibrium because of a scam or technical issues.

Security — the most essential aspect that you wish to consider is safety. In case a Bitcoin exchange is fresh to the world wide web and is lacking contact info, this is a great indication that they probably don’t care a lot about the safety of your private info. Fortunately, if you spend any quantity of time around the numerous Bitcoin forums and communities on the internet, you will see which exchanges suffer from issues and then exchanges are advised. As an instance, some Bitcoin exchanges may not let you withdraw money into a US bank accounts. It is a fantastic idea to ensure whatever market you are considering using has a means that you convert your BTC to the regional money safely and easily. In 2013, a few people started complaining about the amount of time that it required MtGox to move funds into the US, therefore it is a fantastic idea to once more hit on the forums and attempt to gauge public opinion about any trade you are considering using. Then let us have a glance at a few of the main Bitcoin Exchanges currently working. New ones are emerging all of the time, but it is usually a safer bet operating together with a single which has been in existence for some time and has managed to accumulate a history of being reliable and fair.

CoinBase — This is among the hottest Bitcoin exchanges right now. They give the capability to move money to US bank account. That being said, if you reside elsewhere in the world, you might not be pleased about being unable to move funds to the regional bank accounts.

MtGox — At once, MtGox was accountable for the vast majority of all Bitcoin trades on the Planet. This has changed lately as they have run into some legal issues in various nations around the world, but they are still an extremely popular Bitcoin exchange which a lot of men and women utilize on a daily basis.

BTC-E — This site is located in an unknown town in Bulgaria, and that means you may be careful about maintaining any BTC here. The costs per BTC are usually a whole lot lower, but that is only because it requires a ridiculous quantity of time to validate that a trade. Nonetheless, it’s a choice you may look at based on where you live now.

Bitstamp — This market is comparable to CoinBase at a great deal of ways. The most important distinction is they do regularly work with individuals in countries aside from the USA, which makes it effortless to move BTC to overseas currencies. If you’re searching for a really international Bitcoin exchange, this is a great place to get started. We mean you could exchange different cryptocurrencies too. If your digital money investments go beyond Bitcoin, then you will want to check out Cryptsy.

BTer — With slow trade speeds and limitations on how big trades, this is not really recommended, however we believed they deserved a place on the list only because they do serve the demands of some men and women who utilize Bitcoin.

BTC-China — Some of the quickest growing Bitcoin exchanges — based on Wired magazine — is BTC-China, that has ramped up their attempts lately. By some reports, they have overtaken MtGox since the location where many Bitcoin trades occur on daily basis.

About us

Empirica is a Wrocław-based company that supports many local IT initiatives. Empirica is offering solutions such as Crypto Algo Trading Software implemented by major institutional investors in Poland, market making strategy, wealth management software framework, crypto trading bots and trading software development for companies from capital and cryptocurrency markets.

A brief guide to cryptocurrency exchanges

With a rapidly growing interest among technologist as well as trader towards cryptocurrencies, we have been writing a series of posts about them. In this post we will be covering cryptocurrency exchanges and point out their characteristics, and hopefully at the end of this post you may get an idea on which crypotocurrency exchange to do your trades.

Generally there are many doubts and question marks around how reliable cryptocurrency exchanges are. There has been a lot of rumors and news also around governments getting involved and closing down cryptocurrency exchanges, we heard that in South Korea  the governments is going to raid the cryptocurrency exchanges operating in the country and shut them down. If you are curious about that story, one of the officials from the government called that an “unrealistic move”. nevertheless in recent times we have heard numerous speculations about cryptocurrency world which never came to life.

The purpose of this post is to assess the most known and used cryptocurrency exchanges. We have chosen arguably the top rated exchanges, basing on fees applied, how safe the exchange is, if liquidity in the exchange is high or not, the possible pairs and currencies to trade with  USD, Euros or crypto with crypto and so on. The list we have gathered is narrowed with qualities indicated above.

Coinbase

Coinbase is one the most known and used exchange for Cryptocurrencies with up to 10 million users. Coinbase was founded in 2012 and is California based Crypto exchange for cryptocurrencies like Bitcoin, Ethereum, Litcoin, Ripple and etc. After introducing GDAX, Coinbase also aimed more sophisticated traders with a more powerful tool. Coinbase is also available for mobile users. Fees charged are around 0.25%.

Read here more on our coinbase market making bot and coinbase trading bot.

Bitfinex

Bitfinex is a Hong Kong based cryptocurrency exchange, specialized for trading Bitcoin and Altcoins. About fees, Bitfinex does have very low fees of 0.2% and for those who instead place trades in the order book will pay only 0.1%. Bitfinex is also available for traders to trade using mobile app. Bitfinex offers a variety of order types. For automating the trades Bitfinex also has provided an API feature for third-party softwares to integrate.

Coinmama

Coinmama is a well-known, Israeli based Bitcoin exchanges which traders could purchase Bitcoin using creadit/debit cards. The fees in Coinmama are about 6%, relatively high among other exchanges. Though Coinmama does not require traders to provide or upload their know your customer (KYC) documents.

Kraken

Kraken known as one of the largest Bitcoin exchanges. Kraken’s users can trade Bitcoin using Canadian dollars, US dollars, British Pounds and Japanese yen. Kraken is in Euro volume and liquidity. Kraken was founded in 211 by Jesse Powel, Kraken is also known for low transaction fees ranging from 0% to 0.26% depending on the account tier and the type of the transaction(buy/sell).

Gemini

Gemini is a US based exchange mainly focused on Bitcoin, US dollars and Ethereum. Gemini was founded in 2015 by Winklevoss twins (same brothers who claimed Mark Zuckerberg stole the idea of Facebook from them). Gemini’s users can deposit Bitcoin, Ether and make bank and wire transfer free of charge. In regard to trading fee, Gemini set to charge 0.25% for sellers and buyers. Gemini is referred to as the safest cryptocurrency exchange out there.

More on cryptocurrency exchanges:

Exchange

 

Estimated traffic

 

users

 

Fees

 

Tokens traded

 

Coinbase

 

109M

 

10.1M

 

0.25%

 

Bitcoin, Litecoin, Ethereum, Bitcoin Cash, Ethereum Classic

 

Bitterex

 

85M

 

5.6M

 

0.25%

 

Bitcon, Ubiq, Litecoin, Blackcoin, Dash, Ethereum, Gambit, Gridcoin

 

Bitfinex

 

 

36.5M

 

2.9M

 

0.20% Bitcoin, Ethereum, Ripple, Litecoin, Bitcoin Cash, EOS, NEO, Iota, Ethereum Classic, Monero, Dash, Zcash, OmiseGO and more
Kraken

 

22.6M

 

2.9M

 

0 to 0.26%

 

Bitcoin, Ethereum, Litecoin, Gnosis, EOS, Dogecoin, Tether, Melon, Zcash, Augur tokens, Iconomi, Stellar, Ethereum classic, Ripple, Monero, Dash

 

Okex

 

 

3.5M

 

350K

 

0.20% to 0.25% CommerceBlock, Revain, Bitcoin, Chatcoin, Gifto, Zipper, Ethereum, Zencash and more
Gdax

 

46M

 

4.5M

 

0.25%

 

Bitcoin, Bitcoin Cash, Litecoin, Ethereum
CEX

 

10.8M

 

1.6m

 

3.9%

 

Bitcoin, Ethereum, Bitcoin Cash, Litcoin
Gemini

 

3.4M

 

111K

 

0.25%

 

Bitcoin, Ethereum
Coinmama

 

999K

 

33.4K

 

6%

 

Bitcoin, Ethereum

About empirica

We are trading software company focused on developing the potential that cryptocurrencies bring to financial markets. Empirica is offering solutions such as Algorithmic Trading System used by professional investors, tools for cryptocurrency liquidity, robo advisory software, crypto trading bots and trading software development services for companies from capital and cryptocurrency markets.