Price manipulation – How do bots threaten the average trader and how do they work?

Bots are programs that monitor market conditions and execute trades based on predefined algorithms. This allows them to trade automatically.

It is currently estimated that 80% of the market is dominated by bots. In principle, a trader can create programs based on a trading strategy according to which the bot trades non-stop. These automated shops came into the world of cryptocurrencies in style. But what to watch out for?

There are many bots, such as scapling, arbitrage or trend-tracking Trend bots follow the trend and trade according to it. Arbitration bots take advantage of price discrepancies between exchanges. However, these price differences are only short-lived. Scalping bots try to make money by buying and selling within spreads, buying at the bottom and selling at the top.

How do bots help the crypto market?

Bots obviously benefit the individuals who use them, but they also help markets move more efficiently and provide the necessary liquidity. Greater liquidity can lead to greater institutional interest.

These types of instruments are usually only accessible to large financial institutions, but now virtually anyone can participate.

How can bots be dangerous for us?

If the vast majority of trading on the exchange is made up of robots, it may mean that something is wrong. Using robots to simulate real trading activity to make the exchange more active is called “wash trading” or “slippage”. It is illegal in traditional markets, but much of the cryptocurrency environment is still unregulated, so it certainly happens.

There were also problems with automation on decentralized exchanges. The programs are charging higher fees to ensure that their businesses take precedence. Using an automated, lightning-fast system makes it impossible for any human player to compete.

Pump and Dump

With the help of robots, fraudsters basically change the look of the coin, which seems to be starting a bullish trend. Usually, these frauds occur on small-capped coins, which have not moved for some time and have low volatility. When ordinary traders see that the price has risen a little, it often begins to evoke a certain level of FOMO, which can then largely feed itself.

Offenders often combine this situation with a form of social media campaign to really excite people. Once coins have seen a sufficient increase, fraudsters sell and let the market collapse, because the bullish trend has never been built on anything other than market manipulation.

Fake breakout

Another risk is that bots see the entire order book. And in a situation where the market price is just above the high volume of stop-losses, the bot can artificially sell the currency to trade the stop-losses. This will provoke a chain reaction of the mass sale and the shoes have already set the purchase order in advance.

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