How To Use Hummingbot For High-Frequency Automated Crypto Assets Trading

Algo Trading for Market Makers

Are you an existing trader looking to become more sophisticated in your crypto asset trading strategies, but you have very less or nearly no experience in using trading bots?

Then you are at the right place. Hummingbot is an open-source software that helps traders like you build high-frequency crypto asset trading bots that specialize in market-making and arbitrage strategies. Not only that, with sophisticated strategies like Avellaneda, Hummingbot is the only trading bot designed for professional market makers and liquidity providers.

So, what exactly is market making?

Market making in simple terms is the act of continuously generating buy and sell orders for an asset in a market. A market maker serves as a liquidity provider by enabling other market players to execute the market maker’s orders, hence facilitating trading. Historically, highly technical quantitative hedge funds and trading organizations with the technology and ability to run sophisticated algorithms at scale have dominated the market-making sector.

Market makers are crucial for supplying financial markets with liquidity, particularly in the highly fragmented world of crypto assets. While huge professional market makers compete for the most commonly traded pairings on the most active exchanges, there is a tremendously long tail of smaller markets that require liquidity as well, like tokens apart from the listed top ten, smaller exchanges, decentralized exchanges, and new blockchains.

This is where Hummingbot comes to the rescue. What started in April 2019 as a simple open-source market-making bot, has now grown into an extensible framework that lets you design custom trading strategies on any crypto asset exchange.

All you need to know about Hummingbot

An algorithmic trading strategy, also known as a “bot,” is an automated process that creates/cancels orders, executes trades, and manages positions on crypto asset exchanges. A strategy, like a computer program, enables traders to adapt to market conditions in an automatic and continuous manner.

Hummingbot is local software that helps you build and run such crypto-asset trading bots that automate the execution of orders and trades on various crypto-asset exchanges and protocols. It’s an algorithmic trading bot that can execute crypto asset trades based on preset rules.

With the help of Hummingbot, you can trade tokens like Bitcoin, Ethereum, Solana, and several other altcoins. This high-frequency trading bot has been designed to trade crypto assets at the highest speed and reliability and can place and change trading orders every second, as per your need. 

How does it work?

Hummingbot is not a protocol or exchange. Instead, it’s open-source client software that you can install on a local machine that interacts with exchanges and protocols. All you need is a PC and an internet connection! That said, the software is scalable and multiple instances can be deployed using various tools. 

You can use Hummingbot to build any type of automated crypto asset trading bot; however, the most popular bot kinds are market-making and arbitrage bots. Market-making bots provide a trading pair on exchange liquidity, whereas arbitrage bots take advantage of price discrepancies between trading pairs on various exchanges. 

Initially, users install the Docker image version on AWS or another cloud provider. And then later on add their API key or private keys to it, which allows them to configure and run one of Hummingbot’s pre-built strategies on many different exchanges.

You can in fact try out Hummingbot in your web browser without installing anything! Visit their Test Drive page for more information.

Why do you need Hummingbot?

  • Advanced market-making strategies: With advanced strategies like Avellaneda, Hummingbot is the only trading bot designed for professional market makers and liquidity providers alike. Using Hummingbot, you can create any automated trading strategy on any exchange and blockchain you have an account on.
  • Security and transparency: Market makers need to keep their API keys, private keys, and strategy configuration private and secure, thus Hummingbot is a local software client and not a web-based platform. In addition, Hummingbot’s open-source codebase is publicly auditable on Github.
  • Flexibility and funds tracking: The strategies are fully configurable and the bot has the flexibility to allow you to build and deploy your own strategies. The tool has options to clearly track your funds and bot PnL, giving you full control over your bots’ performance.

Who can benefit from Hummingbot?

Anybody and everybody! Hummingbot has been designed for use by individuals and professionals alike. If you are interested in high-frequency, automated trading in the crypto asset market, Hummingbot is for you!

An important part of a trader’s success, especially those who trade frequently, is the ability to recognize patterns in trading data. Keeping a close eye on the crypto asset market may be difficult for people with limited experience in this field. Hummingbot can help such traders by providing thorough documentation regarding all the strategies and how parameters may be set to achieve an advantage in trading.

If you’re not taking advantage of Hummingbot, you’re missing out.

You can register your interest by tapping on the link below and we will get back to you soon.

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1. Is Hummingbot a protocol or an exchange?

Hummingbot is open-source client software that you install on a local machine that interacts with exchanges and protocols.

2. Do I need to pay any fee for using Hummingbot?

You need to pay nothing! You can just download the software and get started.

3. What infrastructure do I need to use Hummingbot?

Just a PC and an internet connection! You can just install the software and get trading!
That said, the software is scalable and multiple instances can be deployed using various tools.

4. How does Hummingbot store my private keys and API keys?

Hummingbot is a local software client that stores your private keys and API keys in encrypted form. It never exposes your keys externally.

5. What strategies can I deploy?

Depending on your trading needs, you can try out several market-making strategies. Two of the most popular ones are:
- Pure Market Making: Highly configurable, popular with beginners
- Avellaneda Market Making: Based on the seminal Avellaneda & Skoikov paper

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