Why Is Portfolio Rebalancing Key in Crypto Trading Bot Development ?
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Portfolio rebalancing is the process that helps maintain the allocation of the trading bot's investments within target limits in spite of the changes of prices and deviation of individual assets. Otherwise, an investment portfolio may start to be filled with those assets whose value increased the most, thus leaving the system prone to risks not anticipated by the creators.
The development of rebalancing logic presupposes the choice between threshold-based triggers and periodic ones; in both cases, the question arises about the frequency of executing trades and the reaction of the system to either temporary changes in price or longer-lasting trends. The costs of executing trades and their slippages must be considered in the development of such logic because constant rebalancing among volatile assets may lead to losses due to improper management of trade volumes.
Furthermore, there is a question of execution timing because rebalancing usually includes the execution of several trades simultaneously, and any delay or partial fill in some trade would cause the system to be temporarily out of balance. Such an issue becomes regular for a Crypto Trading Bot Development Company as the rebalancing logic has to work under different conditions of the market.
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