Definition
A trading bot is an automated system that places, modifies, and cancels orders on cryptocurrency markets according to a programmed strategy. It connects to trading venues, such as a CEX, through APIs and reacts to market data in real time. The bot follows preset logic, such as technical indicators, price thresholds, or algorithmic rules, to decide when and how to trade. Its primary purpose is to systematize trading behavior and remove the need for continuous manual monitoring.
In crypto markets, a trading bot can operate across spot markets and derivatives products like Perpetual Futures. It typically incorporates parameters that account for Order Execution behavior and market microstructure, including order types and depth of the order book. By automating these decisions, the bot can respond more quickly than a human trader to short-term price changes and liquidity shifts. The concept focuses on the automation of decision-making and order placement rather than the specific strategy being implemented.
Context and Usage
Trading bots are commonly used in environments where speed, consistency, and precise control over Order Execution are important. They may be designed to manage Slippage by controlling order size, timing, and price limits in fast-moving markets. In derivatives markets that offer Perpetual Futures, bots often integrate Funding Rate data as part of their logic to account for the ongoing cost or yield of holding positions. Their behavior is entirely determined by the rules encoded by the user or developer, making the bot a neutral execution engine for a chosen trading approach.
On a CEX, a trading bot interacts with the exchange’s matching engine through authenticated API keys, submitting orders under the account it is linked to. It continuously reads price feeds, order book updates, and position data to update its internal state and decide whether to open, adjust, or close trades. The concept of a trading bot therefore centers on algorithmic, rules-based interaction with crypto markets, with performance and risk characteristics defined by the underlying strategy and configuration rather than the automation itself.