Portfolio distribution: what does it mean for your Bots?
February 17, 2022

Portfolio distribution: what does it mean for your Bots?

Let's look at portfolio distribution, what it can do for your bot and how to keep the volatility low.

Portfolio distribution: what does it mean for your Bots?

BOTS wants to make sure that everyone in the world has the opportunity to build a second, passive income through investing. To do so, we need the help of our bot creators. But what can you expect from us, what do we expect from you, and how do things work? Let’s tell you all there is to know.

Let’s look at portfolio distribution, what it can do for your bot and how to keep the volatility low. One of the essential parts of developing an algorithm is risk management. One of the ways to do this is by distributing your portfolio over several assets. But how do you do so, and what are the benefits? Let’s dive in.

The downside of trading in a single asset

As you know, it’s close to impossible to trade with a single asset continuously. If you make a trade at a specific point in the market and exit this trade a little while later because it doesn’t work out, that leaves you with a gap. During this gap, the market continues to fluctuate until you’re ready to make another trade. The downside of this is that during this gap, you might’ve missed out on some very interesting fluctuations and thus exciting trades.

The conclusion you can draw from this is that it’s not interesting to trade with a single asset. Too many gaps mean too many missed opportunities. But what if you wouldn’t scan one single asset, but multiple?

Trading in multiple assets

This way, you don’t have to wait for the perfect opportunity to come by in one specific asset. This ideal opportunity might just come by a lot sooner at a different asset. But the only way you can jump into this trade is by looking at several assets simultaneously.

Door #1

When you do so, there are two doors to choose from. Door number one leads you to the most aggressive tactic: diving into each available position with 100% of your portfolio. You see an opportunity and fearlessly go for it.

But what if this opportunity turns out to be a bit less favourable than you had expected? In that case, you end up with your whole portfolio in that single market, without the opportunity to jump onto a great opportunity that might arise somewhere else. Obviously, not something you’d want.

Door #2

To prevent this, you can decide on opening door number two and maximize how much you’ll put into every trade. So if you’re scanning five different assets and only put a maximum of 20% into each trade, you will still have a high enough percentage left to gain enough market exposure and jump into the other assets. This gives your users a stable return over the long term and the ideal spread of risk.

As you can see, there are a few ways to use asset distribution to increase or improve your risk management.

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