How does one trade in cryptos? With increasing interest in crypto trading in India, it would be worthwhile to understand the various options available. Is there more to trading than just manual trading?
Welcome to API trading, which is somewhat like the digital version of a stock broker. It will automate crypto trading for you and help you make informed decisions compared to manual trading. In this blog post, we will discuss API trading and the pros and cons of manual crypto trading vs. API crypto trading. Let’s dig in.
What is Manual Trading?
Manual trading is one where a trader opens and closes positions manually. Manual trading involves making trade decisions and executing trades based on personal research, analysis, and market knowledge.
Manual traders use crypto trading terminals to collate information. They set up alerts and notifications so as not to miss market movements. In short, no transaction can be executed without the trader’s go-ahead.
What is API Trading?
Application Programming Interface trading, or API trading, empowers traders to execute trades automatically. In other words, API connects the trader’s system to the exchange like a bridge.
API trading, also known as automated or algorithmic trading, allows traders to retrieve real-time market data, place orders, check account balances, and monitor the execution of trades.
API trading vs. Manual trading
APIs form a software bridge between computers, allowing them to communicate with each other to execute a trade. They act as a code translator between computers to help carry out complex tasks at hyperkinetic speeds that are impossible for humans to achieve.
API trading algorithms work on a set of predefined rules. This allows the traders to eliminate human emotions and errors from the trading equation.
Manual trading, on the other hand, is based on the trader’s knowledge and understanding of the market and decision-making prowess. In manual trading, the trader has complete control over the trades. In case of unforeseen events, manual trading can save traders from big losses as they can act upon the market movement.
Manual trading vs. Automated trading: Which is better?
We have briefly touched upon the differences between the two modes of crypto trading.
Here, we present the pros and cons of each at a glance.
Pros and Cons of Manual Trading
- There is no better way to understand the market and its movements than manual trading.
- The trader has complete control over trades.
- Manual trading gives the trader the opportunity to react quickly to changing market conditions. Algorithms are trained to deal with set conditions, not unexpected developments.
- It is dependent on human decision-making, emotions, and biases, which can adversely impact trading decisions.
- There is a limit to human capabilities when it comes to tracking too many cryptos or market indicators.
- Crypto markets never close, making it nearly impossible to track them 24/7.
- Manual trading isn’t suitable for certain trade strategies such as scalping (very short trades) and arbitrage opportunities that may be available for a very short period.
Pros and Cons of Automated Trading
- Automated trading is available 24/7 in keeping with the crypto market. Using automated trading will help you trade irrespective of time.
- Algorithms can do powerful calculations. It can process large amounts of information within a short period and do transactions quickly.
- Automated trading allows trading in cryptos on multiple exchanges.
- The API can incorporate several market indicators, helping traders in their process.
- Automated trading is complex to understand. Moreover, trading algorithms aren’t designed for news trading and thus they might perceive the fundamental indicators incorrectly.
- API trading is fully automated and thus lacks human intuition.
- Automated trading might work well in uptrends or downtrends, but it may not be very efficient in a market that is trading sideways. The trading algorithm will require frequent adjustments during a volatile market.
- Certain APIs might be ambiguous and thus incomprehensible. Such algos might fetch you profits in the beginning but tend to turn unprofitable after a few market cycles.
Pros and Cons comparison
Here, we bring a side-by-side comparison to make decision-making easier for you.
|Manual Trading||Automated Trading|
|The decision can be influenced by human emotions and bias||No emotions or bias can impact decision-making|
|Trader has to monitor 24/7||The API keeps track of the market constantly|
|Lacks predefined rules for buying and selling||All the rules of API are predefined and tested|
|Works best for fundamental analysis||Works best for technical analysis|
|Risk management is crucial to reduce losses||The algorithm has built-in features for risk management|
|Higher risk as the human factor impacts the efficiency of strategies||Reduced risk as each algorithm is backtested|
|Significant chance of price slippages||Positions are closed and opened at predefined levels, reducing the chances of price slippages|
Factors to consider while choosing
Now you have all the information you need to choose between the two trading options. Technology has transformed several areas dominated by humans, including trading. Computers and algorithms play an outsize role in the functioning of financial markets. Yet, some might argue that nothing can replace human intuition in trading. Consider all aspects before you select your crypto trading method.
Use cases for API Trading
We list some popular use cases for API trading.
- Spot cost average
Buying or investing in crypto assets regularly to achieve the cost-averaging benefits for selected trading pairs is known as cost average or dollar cost average. This strategy also helps reduce the impact of market volatility on your portfolio.
With automated trading, you can set how much to buy, when to buy, and when to sell based on your parameters. The API can also help you to buy more when the price dips and sell more when the price peaks.
- Rebalancing API
Market volatility can disrupt the distribution of crypto assets in your portfolio. Market swings will make it difficult for long-term holders to maintain a balanced allocation.
Rebalancing API would help traders allocate portfolio assets in an orderly manner. Algos can be automated to sell overweight assets and buy underweight assets to balance allocation.
- Grid trading
Grid trading is a strategy employed by traders in a sideways market where orders are placed at regularly rising or falling prices that are above and below a preset price level.
Automated trading can help place orders within a predetermined price range at specific intervals. Traders can benefit from spot grid trading API when an asset’s price fluctuates within a range.
Making the decision
The difference between manual and automated trading is clear. Manual trading depends on a trader’s knowledge, market analysis, and decision-making ability. API trading takes the decision-making part out of the trader’s hands by automating the process. Yet, it is up to the trader to choose the trading tool based on his experience and market conditions.
Trading methods, like cryptos, are fast-evolving, catering to the varying tastes and demands of a generation of young traders. Automated crypto trading helps reduce manual work and increase speed and efficiency. If you are a crypto trader or investor, you should give automated trading a try as it can free up your time and increase the quantum of trading. Trading platforms such as CoinSwitch offer users free access to its APIs on its PRO crypto aggregation platform.