What Is Algorithmic Trading?

An algorithm continuously monitors data such as price, volume, time or technical indicators and sends orders on the user's behalf when the defined conditions occur. On crypto exchanges, bots are usually connected to an account through API keys. Common strategies include DCA bots that buy a fixed amount at set intervals, grid bots that place staggered orders across a price range, market-making bots, and arbitrage bots that exploit price differences between exchanges.

For example, a user can define a rule to buy when the 50-day moving average rises above the 200-day average and to sell when it falls below. The bot applies this rule without emotional influence and at a speed no human can match. Before a strategy is run with real money, it is usually tested on historical data (backtesting).

A strategy that looks successful on historical data can lose money when market conditions change. Faulty coding, exchange outages, slippage in low liquidity and theft of API keys are other significant risks. It is recommended not to give API keys withdrawal permission and to be cautious of bot services that promise guaranteed profits.