Robinhood Introduces Automated Crypto Investments

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Robinhood is the latest financial platform to announce that it is expanding its services to include a feature that enables automated investing for cryptocurrencies.

Unlike stock exchanges, which have set opening and closing times, cryptocurrency trading occurs all day, every day, making it difficult to keep a constant eye on the market without employing some form of automated trading.

Robinhood has been at the forefront of crypto investing as one of the most popular financial service platforms in the U.S.

Here’s what automated trading could mean for Robinhood users as well as the benefits of using crypto trading bots.

Robinhood Adds Recurring Investing for Cryptocurrencies

Recurring investing, aka “set it and forget it,” is a popular technique for investing a set amount of money at regular intervals.

The crypto market is a beast that never sleeps, and even a few minutes can mean serious profits or losses for investors.

By automating the trade process, investors can quickly open and close positions based on predefined parameters. You can easily fine-tune your investment strategy and execute trades based on technical and fundamental indicators.

In the blog post announcing the change, Robinhood touted its recurring investing feature as a way to enable investors to “focus on long-term growth, reduce risk, and reduce the stress of timing the markets.”

The concept is not exactly new; it has been profitably applied to the stock market for decades.

Robinhood already offered automated trading for traditional stocks and exchange-traded funds (ETFs), so cryptocurrencies were the next logical step.

It announced automated trading for crypto investments on September 8, 2021, and rolled out the feature for all investors at the end of the month.

All seven cryptocurrencies that trade on Robinhood, including Bitcoin, Litecoin, Ethereum, and Dogecoin, are eligible for recurring investing.

How Automated Trading Works on Robinhood

In its announcement post, Robinhood said the new feature will allow crypto investors to regularly purchase cryptocurrencies, commission-free, with as little as $1 on a daily, weekly, or monthly schedule.

For example, you can set up a recurring investment to buy $10 worth of ETH every Monday, and Robinhood will automatically buy $10 worth of ETH for your account when Monday comes around.

Recurring crypto orders are placed as limit orders collared up to 1% above the last trade price, meaning your order may not execute if the price of a coin is more than 1% higher than its price when your order was placed.

You can set up recurring investments right from the Robinhood app and easily alter the parameters. No matter what your investment goals might be—fulfilling a long-term investment plan, growing your retirement portfolio, getting rich fast—automated trading can be a boon for anyone.

Benefits of Automated Trading Using Bots

Automated trading is a great way to invest in pretty much anything without having to manually make decisions about every purchase.

You simply specify an amount of money to invest in an asset at a set time interval, and voilà! Crypto trading bots automatically do everything for you based on your exact specifications. Below are some of the benefits of automated trading.

Dollar-Cost Averaging

Automated investing is not only convenient, it completely eliminates the stress of trying to time the market to get the best possible deal.

By buying a particular asset for a set amount on a regular basis, you’re using an investment strategy called “dollar-cost averaging.” It’s a strategy that tries to minimize the risks of a fluctuating market by slowly building your position over time.

You essentially invest equal dollar amounts in an asset at regular intervals. You could sometimes end up buying when the price is down, and other times, you may end up buying when the price is up.

It’s not for everyone, but it can be a great way for removing the emotional barriers of investing.

Dollar-cost averaging is an especially good technique for volatile assets like cryptocurrencies because it lets investors avoid potentially timing investments poorly and buying right before the price hits a big uptrend.

Short-term price swings won’t matter as much because you’ll increase your chances of paying a fair price over time when you buy at different prices.

Robinhood has pitched dollar-cost averaging as the biggest benefit of its recurring investment feature. Even Robinhood CEO Vlad Tenev highlighted the value of dollar-cost averaging by tweeting, “Much cost averaging … wow 👀” after Robinhood’s announcement was made.

Speed and Consistency

A trading bot runs on software, so it can naturally buy and sell crypto holdings much faster than any human could manually.

You can place precise market orders that are executed at any time—24 hours a day, 7 days a week—and you can expect consistent execution based on indicators you set.

A bot can also save you a lot of time and heartache because it can constantly watch the market while remaining 100% impartial. It saves you from having to stay glued to your screen watching profit margins and completely eliminates the risk of “emotional trading.”

That said, bots aren’t prescient, and market conditions in the crypto world can change at the drop of a hat. You still have to watch the market for changes and adjust your trading strategy accordingly.

Risk Diversification

The cryptocurrency market is incredibly volatile, and savvy investors know to never put all of their eggs in one basket. Running multiple bots with different strategies is a great way to control your exposure to the market based on your tolerance level and risk appetite.

You can use bots to hedge against market crashes by setting multiple stop-loss values. Using trading bots to diversify your risk is by no means foolproof, but it’s a great way to balance your market exposure, maximise your profits, and minimise your potential losses.

Backtesting

Trading on the crypto market is complicated, and many newbies would benefit from backtesting their strategies in a sandbox environment before committing real money to trades. That’s where trading bots come in.

You can use bots to safely fine-tune and optimise your trade parameters in a virtual environment that runs on historical market data. Once you’re certain your parameters are profitable or at the very least good enough not to cause catastrophic losses, you can transfer them to your live account and see how well they do.

The Bottom Line

Robinhood isn’t the first broker to offer automated crypto investments, but it is without a doubt among the most famous brokerage firms operating out of the U.S. to do so.

Automated trading has been tried and tested in traditional financial markets, so there’s no doubt that it can be just as successful in the crypto world.

By using bots to automate trades, investors can enjoy numerous benefits, including speed and consistency, emotionless trading, dollar-cost averaging, backtesting/paper trading, and more.