Trading Bot 101: What is KuCoin Trading Bot and How Does it Work?

2021/05/10 06:34:56

In January, earlier this year, an IDG-backed cryptocurrency exchange, KuCoin, announced the official launch of its own cryptocurrency trading bot. The bot, like other similar software, can be used for automated crypto trading. Simply put, users need to create an account, enter specific parameters, and deposit some money — their initial investment.

From that point on, the bot can take over and trade on their behalf. It will use the parameters in combination with the information about the market that is being fed to it through analytics and other tools to make price analyses and forecasts. Based on those, it will place buy and sell orders, which will get executed as the price moves.

What Can KuCoin Trading Bot Do?

The bot can also use a variety of trading strategies, most commonly spot trading, also known as Classic Grid trading. This method revolves around seeking profit from market fluctuations by positioning buy and sell orders.

Essentially, the system will buy coins when their price drops, and sell them when it climbs over the base currency at set intervals and around the set price. As a result, it will make gains by using the market trends.

The bot is typically quite successful when it comes to grid trading, as it is simple, and the biggest reason why people tend to lose money while using it manually is the human factor itself. People make mistakes due to their emotions, while the bot uses nothing but rules and information to guide its decisions.

So, during the volatile periods, when the price of specific coins like Bitcoin or Ethereum goes below a certain price, the bot will place buy and sell orders based on the total grids and price range in advance. Then, the orders will be executed as the price moves up or down. When the situation turns and the price starts rising, it will also make a forecast to decide when to make a sale. If successful, it will recover the invested money, as well as the extra funds which will be pure profit.

Apart from Classic Grid trading, the KuCoin Trading Bot also supports Dollar-Cost Averaging, which is essentially a long-term investment strategy. For example, if someone wanted to invest $10,000 into BTC, it is not recommended to invest all at once. Instead, users could give instructions to the bot to invest a smaller amount in specific intervals. It is a strategy that is difficult to stick to when you trade manually, but it has been proven to work, so giving this task to the bot can be beneficial in the long term.

Another important thing to note is that the bot is entirely free of charge. Users do not have to pay anything to use it, meaning that there are no subscriptions of any kind, access fees, and alike. All that they need is an account on the exchange and some money that they can deposit for the bot to start trading.

How Does Grid Trading Work?

When it comes to Classic Grid, it is not difficult to understand. The bot uses AI parameters by default, where the parameters will already be set for the user, based on the historical data. All that the users themselves need to do is set the trading pairs and select several funds that the bot can use. After that, they can let it do its thing and start earning profits.

Users can also customize parameters manually if they wish to change something, although this will require actual knowledge of what they are doing. There are several parameters that users can specify in this way, such as the Min. Price and Max. Price.

The Min. Price is the minimum price that users will set for buying in. Essentially, the bot will constantly keep track of the price, and if it ever goes below this amount, it will stop buying from that point forward until it rises back above this level again. The max price is the maximum price that users can set for selling the coins. Once again, if the price exceeds this amount, the bot will stop selling.

There are other concepts, such as the Number of Orders Placed, which is the total number of placed buy or sell orders. Then, there is Total Investment, which is the amount that the user intends to use for grid trading. The funds will be transferred from the user’s KuCoin account to their bot, and when it finishes trading, the bot will send them back.

There are also some advanced settings, such as Stop Price and Entry Price. Entry price indicates the price you intend to buy the base currency, while the stop price is the minimum price at which to sell the base currency.

How to Calculate the Profits?

Letting the bot do its thing uninterrupted is likely going to be a good decision, but you should still keep an eye on it and its work. Without interfering, you can simply calculate the profits on your own. Here, there are a few concepts to explain, such as Grid Profits, which is, essentially, the price gap between grids, times the purchase amount of the grids, times the number of the filled orders.

Another thing to keep in mind are Floating PNLs, which can be calculated with a simple formula:

(The market price of the base currency - Average price of buying in) * Holding amount of the base currency.

You can calculate total profits quite easily, too. Simply check out the realized profits and add the floating PNL, which can be calculated by using the formula above. You might also want to calculate the APR, which is basically: (Total profits/Total Investment) / Days of Operation * 365 days.

Closing Thoughts

KuCoin’s bot trading is another great way to utilize this trading platform's functionalities to your benefit. Visit our KuCoin Trading Bot page, where you can sign up and start earning a profit.