Technology

Trading Algorithm vs Yield Optimizer: Which Solution to Earn Cryptocurrency?

Updated 21 Sept. 2022 at 13:58

A war has been declared between trading algorithms and yield optimizers. If you are looking for passive income, these two solutions are by far the most used in the crypto world. Let’s sum it up and see together which solution is best for your needs.

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The trading algorithm, also called “automatic trading” or “trading robot”, is defined by the program code. Its purpose is to act on the market instead of the user.

This type of service has mainly been deployed in large institutions, hedge funds, and also to promote high-frequency trading. Nowadays, they tend to become more and more popular among the general public.

More specifically, it is a program that scans the markets for trading opportunities. Depending on the parameters of the algorithm, the latter should have an interesting earning potential.

The trading algorithm automatically decides whether to open a position in the market or not. It takes into account time, asset value, trading volumes, etc. And this is without the intervention of a third party.

There are thousands of them and their effectiveness depends on several parameters, the most important of which is the strategy used. Contrary to what one might think, structuring a trading algorithm is not an easy thing to do.

In addition to the necessary knowledge, research and development is a significant amount of work for people who want to build their own program.

This takes time, as it requires a lot of backtesting, but above all, it requires one or more strategies that have proven themselves at the initial stage.

The latter should indeed be based on a number of relevant patterns and indicators. Unfortunately, this does not apply to all trading robots.

Indeed, the vast majority of trading algorithms on the market are based on a system that is too simple. Some are programmed, for example, to detect intersections between 50 and 200 moving averages. Obviously, such a strategy is not enough, and it brings very little profit, even losses to the users of these trading robots.

It is for this reason that trading algorithms have a relatively bad reputation. Lots of scammers are popping up spouting out the best, most effective programs.

Yield Optimizers: Really Profitable Tools?

On the other hand, yield optimizers have the same goal as trading algorithms: to optimize the earnings of their users. However, even though the background is the same, the shape is different.

To start with, crop optimizers are also referred to as “crop optimizers”. Now that the translation is done, it becomes more obvious that they are not meant to be traded. They act as an aggregator of agricultural platforms.

With this label of aggregators, their mission is to optimize the revenue generated from cryptocurrency farming activities.

This practice is typical of decentralized finance (DeFi) and is mainly based on the mechanisms of lending and borrowing in cryptocurrencies.

Specifically, Yield Farming is a way to earn rewards with held cryptocurrencies. In other words, we are talking about blocking cryptocurrencies in pools and receiving rewards or interest in return. This is often similar to a bet, although Yield Farming is relatively more difficult than the latter.

Yield optimizers like Beefy or Yearn Finance have been on the rise for some time now. Their main advantage remains APY, yields that sometimes reach very high percentages, despite any competition.

However, the risk associated with this activity is much higher than for any other crypto financial service. Indeed, the structure of these platforms makes them attractive to hackers.

Remember that liquidity pools in which creditor tokens are locked up are in the form of smart contracts, computer programs. Therefore, they are often wrong. Full extraction of value from the pool can occur at any time. This is all the more true when it has not been tested and whose reliability is ultimately unknown.

Moreover, the risk of capital loss or gain remains the main disadvantage of this practice. Whether on the part of the lender, with the risks of intermittent losses, or on the part of the borrower, with the risk of being liquidated, income farming is for informed users who master the mechanics of the practice.

Differences between a trading algorithm and a yield optimizer

As we saw earlier, trading algorithms and yield optimizers have the same goal – to generate passive income in an automatic way.

However, they are very different in their design as well as in their mechanism.

Trading algorithms are automatic trading programs. They do not move user funds, but invest themselves based on the chosen strategy and chart patterns. This includes buying and selling on exchanges like Binance or FTX. The trading algorithm is prone to continuous and constant analysis of the chart.

In addition, trading algorithms are not looking for profit, but trading opportunities. They seek to increase the capital of their users by positioning themselves in the markets.

Yield optimizers work differently. They move user funds between different pools for profit.

Leverage effect of income farming alpaca financeA diagram of the crop growing process at Alpaca Finance
Alpaca Finance Documents

The strategies used by these protocols are also included in their program. However, this is not a graphical analysis. Their reasoning is based more on looking for pure performance on the platforms they are installed on. They do not analyze the entire market, but a tiny part of the crypto universe.

In addition, yield optimizers create the concept of “reward” and “compound interest” more than the concept of net profit, as is the case with trading algorithms.

Finally, trading robots have certain features depending on their architecture.

On the one hand, users retain some power over their money management, which is not always the case with Yield Optimezr.

On the other hand, they provide additional security benefits. EnBourse, for example, combines the reliability of its services with the reliability of human manual verification. Called the “Monitoring Deck”, this service includes the ultimate filter run by a real experienced trader. The latter checks the signals detected by the algorithm so that those that reach users are closer to ideal possibilities.

To learn more about the trading algorithm proposed by the EnBourse team, don’t wait any longer, join us here: Automatically invest in cryptocurrencies in complete safety.

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Which solution to choose for earning cryptocurrencies?

In raw data, yield optimizers generate returns that far outstrip any known financial service. They can achieve over 300% yields with certain protocols. In this sense, they are very beneficial.

However, as we have seen, they are not without risk. Hacking as well as loss of profits are important risk factors when using a yield optimization platform.

For their part, trading algorithms are certainly risky, but in much more reasonable proportions. Indeed, the risk of hacking is greatly reduced.

On the most serious platforms, users do not directly deposit funds into the algorithm. Instead, it is an algorithm that connects to an exchange account or sub-account used through an API system. Thus, if the algorithm is hacked, the funds remain safe on the exchange.

In addition, yield optimizers require a very deep understanding of DeFi solutions. Therefore, they are not available to everyone, and their availability may turn off many users.

On the other hand, trading robots have the advantage that they are very accessible even for beginners. Simple settings and an account on the exchange are enough to get access to the service and start receiving passive income. A simple glance once or twice a month is necessary.

Thus, trading algorithms represent time savings, increased security and passive income in accordance with various desired short-term, medium-term and long-term strategies. They are available for everyone, experienced or beginners. They allow you to make interesting profits, provided that you choose the best ones.

New to the world of finance? EnBourse offers you training to start trading. You will learn the basics of finance before embarking on the great adventure of trading and moving towards financial independence. Don’t wait any longer, join us!

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