Do you know that maintaining a diversified cryptocurrency portfolio is quite challenging?– Particularly when you are in the digital finance world. Cryptocurrencies are subjected to high-level volatility. Eventually, this creates a concern among investors to invest in portfolio rebalancing techniques from time to time.
What is portfolio rebalancing?
Rebalancing is the process of modifying the holdings in an investment portfolio to uphold a desired asset ratio. Ultimately, it means purchasing and selling certain assets to maintain a specific proportion of tokens based on the investor’s risk tolerance and investment goals.
However, the process of rebalancing could be more efficient when introducing an AI bot. By doing this, the trader can automate their asset management system efficiently. A rebalancing bot will adjust the crypto assets ratio at regular or fixed intervals whenever the coin proportion exceeds or lowers beyond the set value. You can develop a highly-personalized crypto portfolio rebalancing bot from a leading Crypto trading bot development company.
Why you should rebalance your portfolio?
Firstly, the need for rebalancing arises when the crypto market undergoes extreme volatility and the proximate value of certain assets in the portfolio varies. For example, assume that the price of ETH increases, causing overweight to your Ethereum portfolio and underweight in other crypto portfolios. During such circumstances, rebalancing the portfolio would include selling some ETH and buying other crypto assets to achieve the desired ratio.
Why is rebalancing your portfolio essential?
Rebalancing is necessary for various reasons, such as managing risk, ensuring portfolio diversification, and maintaining original investment techniques and goals, increasing profitability by selling overvalued crypto and buying undervalued ones instead.
Yet, crypto portfolio rebalancing is crucial to ensure that the portfolio is “risk and return” optimized. So, those who utilize automated systems will excel in rebalancing, as they can consider the market situations and plan their investments carefully.
How to set up a rebalancing bot?
The rebalancing bot will automatically change your asset proportions based on the pre-determined combination of your preference. Thus, by selling high and buying low, you can use a bot, helping to maintain the same asset ratio as you desire. All you need to do is, sign up for a third-party rebalancing bot service provider or consult the best AI Crypto trading bot development agency to create your own portfolio rebalancing bot.
Difference between Rebalancing and Auto-Investing
It is essential to note that rebalancing is totally different from auto-investing. The latter allows you to make repetitive investments by simply automating regular purchases of predefined assets. This will not adjust your portfolio under any circumstances. On the contrary, rebalancing bots are helpful to diversify your portfolio and automatically balance a specific asset ratio.
Finally, rebalancing bots act as a stabilizer during sudden market price discrepancies with only minimal effort.