Cryptocurrency is frequently hailed as the future of money, where it’s decentralized, freely available, and (mostly) immune to tampering. Because of that, the crypto asset market is booming.
Nowadays, people are trading crypto coins left and right, these are called traders and they rely on tried and tested trading strategies to reap profits off of the crypto market. However, not all traders are able to execute their strategy due to the emotional stress of trading and holding on to losses.
Because of that, a lot of traders now use trading bots such as Pionex to execute their trading strategies. Using trading bots enable traders to eliminate the emotional aspect and run their trades purely by logic alone.
However, most crypto trading bots are built for the retail investor, what about institutional traders, very high volume traders, or even market makers and exchanges? These customers demand flexibility, robustness, and reliability from their bots. That’s where Hummingbot comes in, if you’re a high volume trader or a market maker, read on!
What is Hummingbot
Hummingbot is an open-source trading algorithm that allows users to run automated trading strategies (bots) on centralized and decentralized exchanges. In layman terms, Hummingbot is the protocol used to create and run homebrewed custom trading bots.
The hummingbot protocol utilizes modular architecture to write exchange connectors and run trading strategies independently from each other. Currently, there are 14 pre-built protocol and exchange connectors available in Hummingbot that link it with trusted exchanges such as Binance, Kraken, and Coinbase.
We can compare Hummingbot to a bitcoin mining bot, they both run locally and in the cloud. However, there are two big differences, the first is that it runs a market-making algorithm instead of a hashing one. The second is that Hummingbot is powered by its users inventory of tokens in different markets/exchanges instead of electricity.
Since almost all modern exchanges are open with their APIs, anyone with the technical skills and financial means can run a market making bot and get a profit from all the bid-ask spreads on those exchanges.
The actual algorithm is quite simple and straightforward, it’s even more straightforward when using Hummingbot to automate these algorithms. If you’re interested in automated market making bots, read on!
The Team Behind Hummingbot
Hummingbot is an open-source algorithm that is developed by a community in GitHub. Currently, it has over 1000 stars and 8000 commits, that’s pretty impressive for an open source project.
The concept behind Hummingbot was pioneered by Yingdan Liang who believed smart contracts would be the future of transactions. He and his team were working on developing a smart contract protocol when they realized that creating a trading bot that could trade across multiple exchanges would be better.
After that, the team pivoted and strived to create a reliable, robust, and performant trading bot to trade in every exchange, and that’s the start of Hummingbot. Currently, any developer interested can join the team and improve the Hummingbot source code.
There are several features that make Hummingbot’s trading bot protocol worth your attention, especially for smaller exchanges. Hummingbot allows any DEX to have the same (or roughly the same) liquidity compared to larger exchanges because market makers will flock to the smaller exchange. This is due to the availability of arbitrage profits which they can get from the bid-ask difference.
However, that’s not the only feature that’s available for Hummingbot users. Currently, it has become a trading engine that’s capable of executing transactions within the parameters set out by the user. Because of the automation, Hummingbot helps eliminate some of the technical complexities related to transacting with centralized and decentralized exchanges.
Hummingbot also facilitates trade execution and interaction between different exchanges by performing actions such as
- Price and order book retrieval
- Submission of trade instructions
- Handling asset transfers for different functions
These features are available for free because Hummingbot is an open source platform that’s freely used and freely distributed. Because it’s open source, it’s also very transparent with the code with multiple contributors and frequent checks by independent parties.
Because of it’s open source nature, it’s also very easy to customize and add extra features based on your needs and wants. This is a godsend for smaller and more niche exchanges that might need extra features.
Hummingbot’s Market Making Bot
The process of market making is defined as the provision of buy and sell offers for an asset continuously. This is exactly what Hummingbot does, it enables users either retail, institutional, or the exchange itself to act as a market maker and liquidity provider.
You simply need to install this bot in your operating system, be it your physical device or a cloud device, set it up using your preferred configuration, and then operate it using the command line.
There are basically 6 features of Hummingbot trading bot that will assist you in making the markets. These features include
- Paper Trade Mode can be used to test your Hummingbot settings and simulate trading strategies without risking any real assets
- Balance Limit can be used to set the maximum & minimum amount of asset to be used and the minimum balance in the wallet
- Minimum Order Size can be used to set the minimum amount of order size for the bot’s market making and arbitrage functions
- Performance History can be used to display the duration, profitability, value, and performance of all past trades done by your bot
- Kill Switch can be used to stop the bot once it reaches a specified threshold
- Integrate Telegram can be used to allow your Hummingbot trading bot to give you updates via telegram. You can also issue commands to the trading bot via Telegram using any device.
These features help make Hummingbot one of the best open source customizable trading bots available today.
Liquidity Mining on Hummingbot
Liquidity mining or also known as yield farming is the act of providing liquidity to decentralized exchanges (DEX) via cryptocurrency.
Hummingbot is currently developing this feature so that you can yield farm using Hummingbot’s protocols.There is a special category on their website devoted to liquidity mining using Hummingbot protocol. It explains how it works, the documentations, and offers the latest updates about liquidity mining using Hummingbot.
However, due to the complexity, we haven’t tried this feature yet and sadly can’t give you deeper technical insights on it. If you’re interested in liquidity mining, go read their highly detailed article about it!
Hummingbot’s Pre Built Trading Strategy Templates
There are 4 pre-built strategy templates that are available in Hummingbot. These strategies include
- Market Making Hummingbot posts bid and ask orders on the market waiting for other players in the market to fill in their orders. When using this strategy, you’re basically becoming a market maker.
- Arbitrage Hummingbot monitors two different markets and captures profit by capitalizing on the difference in an asset’s price between the two markets
- Cross-exhange Market Making Hummingbot combines two previous strategies, it makes markets on the smaller less liquid exchanges and does the opposite, back-to-back transactions for any filled trades on more liquid exchanges.
- Celo Arbitrage Hummingbot arbitrages between the automated market maker (AMM) exchange and other markets that are supported by Hummingbot
You can utilize these pre-built trading strategies to configure your own Hummingbot protocol without too much hassle. However, if you want to have a fully customizable bot, you’ll need significant coding experience.
Hummingbot has a large community of developers spread all over the world. Currently, they have over 8000 active members and it’s increasing pretty rapidly. There are 72 major GitHub contributors that form the backbone of the open-source code.
This community is free to join for anyone interested in learning and using Hummingbot. They’re also very friendly and will help you every step of the way.
If you’re having troubles with Hummingbot, you can drop by their community at GitHub or at the Hummingbot website to ask questions and read troubleshooting cases already done by the members.
However, if reading is more your style, check out their Academy.
Hummingbot has an academy that teaches you everything about the project and how to utilize the software to its full potential. Their academy will teach you everything from the installation procedure, bot configuration, start-up guides, and case studies.
It also comes equipped with video tutorials and case studies in case you want to delve deeper into a topic. Reading and watching the tutorials at Hummingbot Academy will greatly increase your success in using this software.
Supported Operating Systems
Because Hummingbot is a market making trading bot protocol, they are not a plug and play software. You need to set up on Hummingbot and run it on your machine (or virtual machine) to get it working.
Currently, Hummingbot trading bot is available to use on Windows 10 or later, MacOS Sierra or later, and Linux Ubuntu 16.04 or later. However you can also use other versions of Linux such as Debian GNU/Linux 9, CentOS 7, and Amazon Linux 2. However, the developers use and prefer Linux Ubuntu 16.04 compared to these other options.
At the end of the day, Hummingbot is an excellent market making bot for high volume traders, institutional traders, and exchange owners. It has excellent features, customizability, and best of all, it’s open source and maintained by a great and vibrant community.
If you’re the average trader, all of this might be too much for you. Most of its features require some degree of knowledge about coding, cryptocurrency, and blockchain in general. If you’re just a hobbyist buying their first dozen coins, it’s better to stay away from Hummingbot and stick to general purpose, user friendly trading bots such as Pionex!
Our focus on ease of use, simple UI/UX, and customer facing features enables even complete newbies to utilize the power of automated trading bots and reap all the trading profits! Heck even intermediate traders will still get a lot of use out of our standard and specialized bots.
However, if you’re a hardened trader that needs a customizable trading bot specially made for high volume trading and market making, it’s pretty hard to find a better candidate compared to Hummingbot.