Ever since automated trading was brought to the forefront as an efficient way to buy and sell cryptocurrencies, traders have taken to it like a moth to a flame. No matter if they are professional traders or if they are exchanging assets to earn supplemental income, everyone wants a piece of bot trading to make their lives easier.
Doing so is understandable as well. After all, it’s logical for people to want their trades to be highly accurate, properly assessed, and automatically executed in a way that they don’t even have to watch their screens 24/7.
With that being said, while signing up and setting up a cryptocurrency trading bot is easy, operating it with an understanding of nuances can be quite tricky. Selecting between order types, setting up indicators, and making sense of technical analysis could be a whole other world on its own.
One of the most common questions that pop up during this usage phase is the difference between Margin and Spot trading. While both mechanisms are equally popular, trader’s opinions could be quite conflated when it comes to using these strategies through automatic algorithms. It’s because automated Margin trading is said to bring more risks to the table than Spot strategy. But at the same time, it also carries more benefits.
To understand more about automated Margin and Spot trading, here is a breakdown of which mechanism would be more beneficial for you.
Why Margin Bot is Interesting for Trading?
This method attracts traders due to its mechanism of allowing a user to handle more assets than they could normally afford.
Simply put, it lets traders expand their horizons and trade larger amounts of cryptocurrency than they have at hand. This is possible through select exchanges which let their traders use this mechanism to the mutual benefit of both parties.
For traders, Margin allows them to profit off of a larger amount, and as a result, earn more money out of their trades. For exchanges, the mechanism allows more profit out of their funds without even having to perform trading analysis themselves.
Those who use Margin strategy perform their trades with “leverage”. This leverage is the increased allowance of tradable assets that is provided to them through their respective exchange.
If the trade goes well and yields profit, the trader pays off the leverage right away as well as any additionally incurred costs by the exchange. If it doesn’t, even then the trader bears the responsibility to cover leverage from their pocket.
This means that Margin comes about with equal risks and opportunities, making it a tightrope to walk in terms of crypto trading mechanisms. When it comes to the automated bots, the stakes get higher and the profits get larger.
On the other hand, Spot method or dealing with usual order types is simple cryptocurrency trading. You only trade with the funds that you have on hand, and you do not receive any extra funds or leverage to play with. This is a constricting mechanism as compared to Margin, but it works for those traders who want to control their expenses.
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What Risks There Are with Bot Margin Trading?
Since bots are programmed to make trades through technical indicators and analysis, the timing of their execution works in their favor. Any gains in the market could be utilized within a few seconds of their appearance, increasing the chances for profiting off of a Margin transaction.
But at the same time, since the Margin bot works completely on its own accord after getting the trader’s initial permission, the trader does not have a say in stopping trades at the last second. The trade goes through as planned once the bot has been set to operate in its scheduled hours.
This means that whenever a trader changes their mind, they need to configure those changes within the bot as well. Otherwise, simply thinking of them and not acting upon them would get the Margin trading bot to function as planned and execute the trade as it had been instructed to do so.
This sense of urgency could be an everyday thing for professional users, who dedicate their work hours to trading cryptocurrency. But it can be quite grueling for casual traders who are setting up the bot with the very notion of being able to step away from their screen during their day job.
With this, if a trade goes awry and does not yield the profits that it was supposed to, then the situation could get very stressful for the trader. They do not only have to bear the loss on their own funds, but also on the leverage they were able to bank on with the help of their exchange. This particular risk of sometimes doubling or tripling the personal loss is the biggest issue that traders face with Margin strategy.
Is It Worth to Try Margin Bot for Crypto?
If you are wondering about using an automated algorithm or its potential benefits for your trading mechanisms, then there’s no better way to determine these factors than using the bot yourself.
A Margin bot feature is usually available from most reputable cryptocurrency bot providers that deal with usual order types or Spot trading. You will need to make sure that not only the bot is able to perform Margin deals, but that it is paired with an exchange that allows working through automated bots.
At the time of writing, exchanges such as Binance, Kraken and Poloniex offer Margin trading with different levels of leverage. You could sign up with such an exchange, and then move forward with setting up your bot accordingly.
Just make sure that you are starting slow and taking lower leverage into account. As a rule of thumb, only leverage funds that you can personally cover in case of a loss. If you are aware that there’s no way for you to cover a loss experienced during Margin orders, then it is better to not delve into this mechanism.
Which Trading Can Be More Profitable?
When it comes to profits, Margin takes the cake as being more profitable, simply because of the extra leverage involved within it. At the same time, it comes with its own risks.
Keeping this in mind, you should not let your thinking process get dazzled by large gains and always stick to making rational decisions about using Margin method. With that being said, if you are confident of your skills as well as the size of your cryptocurrency portfolio, then you could easily try out Margin bot to check if it’s the best mechanism for you.