Is It Safe to Use a Trading Bot for Cryptocurrency?

Is It Safe to Use a Trading Bot for Cryptocurrency?

Trading bots can be powerful tools for crypto investors, but are your assets safe in their hands? Read this essential guide to learn how to keep your funds secure when using bots, including best practices for APIs, critical security features, and safe bot usage tips.

The allure of cryptocurrency trading continues to grow.  However, for many, the hurdle lies in finding the time to consistently monitor price charts — this is where cryptocurrency trading bots step in. But are bots safe to use?

If you've found this article, it's likely because you're intrigued by the potential of profiting from a cryptocurrency trading bot. It's important to tread lightly, as the crypto landscape is riddled with scams. Any service offering effortless profits should be approached with skepticism.

That said, if you're cautious about the services you entrust with your information, crypto trading bots can indeed be a safe option. In this piece, we'll provide some safety guidelines to help you navigate profitable trading without jeopardizing your assets.

What Is an API Key?

An API key functions like a confidential token, facilitating communication between different software programs. It acts as a unique identifier, confirming your identity and granting permission for exchanges and crypto bots to interact.

Grasping the nature of an API key and how to restrict its access is crucial. You are essentially providing another service or individual with the authority to use your accounts, so careful consideration must be given to access rights.

👉 Consider it akin to your phone. You'd readily share your phone number to allow someone to call or text you, but you'd never disclose your unlock password, which would grant them access to everything on your device!

Similarly, understanding API keys works on the same principle. You want the bot to access your account and execute trades to generate profits, but it's vital to manage their permissions to prevent them from withdrawing your funds or causing any harm.

Why Do Trading Bots Need Access to Your API?

A trading bot operates using your existing exchange accounts, and to facilitate this, it requires access to your API keys.

Without your API keys, the bot lacks the 'secret token' needed by the exchange to share your details, preventing it from executing any trades on your behalf.

While APIs may seem daunting, they are a necessary component. With proper management of permissions, there's no cause for concern.

Is It Safe to Share Your API Keys?

Well, the answer is both yes and no. API keys are safe to share to some extent, but it depends on the permissions associated with them.

Reputable bot providers should only request keys that permit trading. It's a major warning sign if any third-party service provider asks for an API key that enables withdrawals, as this could lead to you being defrauded of your coins.

That said, it's safe to share an API key designated solely for trading, and most exchange accounts offer this feature to bolster your account's security.

As an additional safety measure, you may want to whitelist certain IP and wallet addresses within your exchange account to prevent any mishaps, as this will stop users from accessing your account from undesignated IPs or transferring funds to unverified crypto addresses that aren't under your control.

Additionally, regardless of whether you're using a trading bot or not, it's essential to secure your account with two-factor authentication. This makes it harder for malicious entities to gain unauthorized access to your account, even if they have your email and password.

Is There a Way to Run a Bot without API Keys?

For crypto trading bots, the standard and secure method to connect with cryptocurrency exchanges is via APIs, which require keys. These keys allow your bot to interact with your specific account on the exchange, enabling it to conduct trades and fetch account information.

However, there are alternatives, though they come with their own challenges and risks:

  • Web scraping: Instead of using an API, a bot could theoretically place trades by automating a web browser to interact directly with the exchange's website. This method isn't ideal because it's frequently against the exchange's terms of service, it might be less secure, and it's usually far less reliable than using an official API.
  • Decentralized exchanges (DEXs): Some DEXs enable direct interaction with the smart contract to place trades. This wouldn't need an API key because you're communicating directly with the blockchain. However, harnessing this approach requires a deep understanding of blockchain technology and smart contract interaction. Also, it's essential to keep in mind that this method could accrue significant transaction fees, often referred to as "gas fees" in the world of blockchain.

Both these alternatives are considerably more complicated and potentially less secure than using an API key. If you're developing a crypto trading bot, it's highly advised to utilize the exchange's official API and securely store your API keys, as they provide access to your trading account on the exchange.

Are You Allowed to Use Bots on Crypto Exchanges?

Using trading bots on cryptocurrency exchanges is typically allowed and encouraged. Most major exchanges provide API keys to enable bot trading, as automation is commonly viewed as a standard market practice.

However, it's important to verify the exchange you want to use supports the specific bot you're interested in. Bots have varying exchange compatibility. Also, test any bot thoroughly using a free trial period before committing, to ensure it fits your trading needs and style.

👉 For example, Bitsgap offers a complimentary 7-day trial on the PRO plan. This allows you to understand how Bitsgap’s bots work and gain a good foundation in trading before incurring any costs.

Is It Possible to Get Scammed When Using Trading Bots?

While there is a level of risk involved, conducting thorough research on the bot provider can significantly mitigate it. Here are some measures you can implement to ensure secure trading when using bot software:

  • Steer clear of bot services that request an API key with withdrawal permissions.
  • Thoroughly investigate providers before investing in their software.
  • Ensure their security protocols are robust before entrusting them with your funds.
  • Test the waters by trading with a small amount of crypto before ramping up to larger sums.
  • Use unique email and password combinations for each crypto account.
  • Implement two-factor authentication on all accounts.

In summary, although the idea of entrusting your account details to a third party might be intimidating, with careful planning and smart practices, there's little cause for concern. However, remember not to become so engrossed in the prospect of potential profits that you overlook wise decision-making.

If you're still navigating the world of trading bots and would like to understand their functionality before investing significantly in expensive trading software, consider signing up for Bitsgap's free trial. This will allow you to test the waters before fully committing. As an added perk, you can also leverage "backtesting," which enables you to trial your trading strategies in real-time before investing your own funds!

What Security Features Does Bitsgap Implement?

Although we've extensively discussed our security measures in a dedicated article, which you're invited to read, we would like to briefly summarize these procedures here to reassure you of your safety while trading with Bitsgap.

At Bitsgap, your security is our top priority. We value your funds and personal information just as much as you do.

Here are the steps we've taken to keep you safe and secure:

  • API Encryption: Bitsgap connects to your exchanges using encrypted API keys, preventing any withdrawal or transfer of funds. Any API key that comes with withdrawal permissions will be automatically denied. The only access Bitsgap requires is to your trade history, balance view, and trading operations. Therefore, your funds are secure as they remain in your exchange. No KYC or personal data is collected, so there is no risk of information leakage. You can even create a separate email address for Bitsgap for added security.
  • Enhanced API Protection: Bitsgap has implemented the rule that the same API key cannot be added to more than one Bitsgap account, adding an extra layer of protection. Bitsgap also provides countertrade protection, blocking malicious trading activities, and fingerprinting technology to track and block users trying to perform unscrupulous actions.
  • IP whitelisting: You can restrict the API key to certain IP addresses, thereby blocking any trading activity outside Bitsgap.
  • OAuth: Bitsgap has partnered with certain exchanges like Binance, OKX, and Kucoin to implement OAuth, an open-standard authentication framework. OAuth allows users to grant applications access to their information on other applications without revealing important credentials like passwords. It enhances trading security and is convenient to set up.
  • 2048-bit RSA Encryption: All information delivered to Bitsgap servers is encrypted with 2048-bit standard protocols and stored on a secure network protected by a firewall. This level of encryption is even stronger than what many online banking apps use. Every user account is encrypted with its own separate RSA-2048 key, adding another layer of security.
  • Two-factor Authentication: Bitsgap allows you to enable two-factor authentication (2FA) to ensure that the person signing into your account is indeed you. 2FA requires two sources of confirmation of your identity: something you know (your password) and something you have (a code sent to your phone or email). You can even use hardware security keys for 2FA, such as Yubikey.

While no system can guarantee 100% protection at all times, these measures significantly enhance your account's security.

Ready to test Bitsgap now? You’re welcome!

How to Choose a Secure Cryptocurrency Trading Bot?

Robust security features are critical when selecting a cryptocurrency trading bot to safeguard your assets and data. Look for bots that offer:

  • Two-factor authentication: Requires an additional step like a verification code along with your password for logging in. This prevents unauthorized access.
  • Encryption: Encrypts your personal data and account information to make it unreadable without a decryption key. Protects your data while stored and in transit.
  • Limited API permissions: Allows you to customize what actions a bot can perform with your exchange API key, like restricting withdrawals.
  • Regular security updates and audits: Up-to-date defenses against new hacking tactics and independent verification of security measures.
  • Reputable developer: Created by a team with a proven track record in security and protecting user funds.
  • Positive reviews and community trust: Indicators that real users are satisfied with the bot's security protections for their assets.

Prioritizing these security features helps ensure your funds and data stay protected from unauthorized access and theft. A bot built with security in mind gives you greater peace of mind.

Bottom Line

Like all things in life, it's crucial to evaluate the risk/reward ratio when using crypto bots. Engaging with dubious bots from untrustworthy sources can expose you to unfavorable risk/reward scenarios. However, using reputable automated bots and following basic security practices can be a sound decision. Do your research, stay safe, and stay with Bitsgap!


What Are the Risks of Crypto Trading Bots?

Crypto trading bots carry risks that traders should understand before using them. As automated programs that buy and sell crypto on your behalf, bots can execute trades rapidly based on data and algorithms. However, they lack human judgment and intuition. Here are key risks to consider:

  • Volatility: Crypto prices fluctuate wildly. Bots may make poor trades when prices change unexpectedly. Significant losses can accumulate quickly.
  • Malfunctions: Bots can stop working properly. They may fail to execute trades or make erroneous ones. Malfunctions at the wrong time can be financially disastrous.
  • Loss of Control: You surrender trade execution to the bot. If it makes poor decisions, you suffer the losses.
  • Hacking: Security weaknesses could let hackers hijack your bot and drain your funds. That’s why it’s important to share your API information with only reputable companies and use different API keys for different software programs.
  • Strategy Limitations: An ill-suited bot strategy will lose money, even if markets trend favorably.
  • Legal Issues: Bots are illegal in some jurisdictions. Using them can lead to penalties.
  • Expenses: Purchase, subscription, and transaction fees can consume profits.
  • Fraud: Some bots are outright scams designed to steal your money.

Thorough vetting and oversight are essential when using bots. Their automated nature can amplify both gains and losses. Weigh the risks before ceding control of your crypto trading.

What Are Secure Cryptocurrency Bots?

Cryptocurrency trading bots that prioritize security can help protect your assets. Bitsgap leads in this area by implementing robust measures to safeguard user data and funds. The company's unblemished security record over time demonstrates its steadfast commitment to user safety.

What Are Trading Bot Security Features?

Trading bots require stringent security protections to safeguard user funds and information. The key security features include:

  • Multi-factor authentication: Requiring additional verification like codes sent to a mobile device, on top of a password when logging in. Provides an extra layer of account protection.
  • Encryption: Powerful algorithms scramble user data to make it unreadable to unauthorized parties. Applies both to data in transit and data at rest.
  • Limited API permissions: Permissions allow tailoring what actions a bot can perform with your API keys.
  • IP whitelisting: Bots can only be accessed from approved IP addresses you specify, blocking unauthorized login attempts.
  • Secure coding: Bots are built using industry best practices like input validation to avoid vulnerabilities being introduced in coding.
  • Regular updates: Bugs and weaknesses are rapidly patched to ensure defenses stay current against evolving threats.
  • Audits: Independent experts perform in-depth reviews of bot code to evaluate and validate security measures.
  • Privacy protections: Anonymizing user data, only collecting necessary info, and having a transparent privacy policy.

While no bot can be completely immune to risk, prioritizing these security best practices helps safeguard your assets and information from various threats and unauthorized access. Robust security is essential when trusting a bot with access to your cryptocurrency.

What Are Safe Crypto Bot Practices?

These are the tips for safely using crypto trading bots:

  • Use strong, unique passwords: Having separate, complex passwords for each account protects against compromise.
  • Enable two-factor authentication: Adds an extra layer of login protection beyond just a password.
  • Restrict API permissions: Limit a bot's capabilities through exchange API keys.
  • Monitor bot performance: Frequently review bot actions and trades to ensure expected behavior.
  • Keep software updated: Regularly install security patches and version updates.
  • Vet bots thoroughly: Only use reputable bots with positive community reviews.
  • Stay informed: Keep up with cryptocurrency news and trends that may impact strategies.
  • Diversify investments: Spread funds across different assets and strategies to minimize risk.
  • Avoid "too good to be true" claims: Be skeptical of promises of guaranteed profits. Do research.
  • Remember bots have limitations: They automate trades but can't guarantee success. Understand their strategies.

While bots can streamline trade execution, it's crucial to use them cautiously and responsibly. Take steps to secure accounts, monitor bot actions, and diversify your funds.

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