If you’re new to trading or looking into different ways to trade, Copy Trading might seem like an easy and profitable way to get involved. This guide explains what is copy trading in crypto and more!
What is Copy Trading in Crypto?
Copy trading in cryptocurrency allows you to directly replicate the positions of another trader. You choose the amount you want to invest and simply replicate everything they do in real-time. As a result, when the trader makes a trade, your account will also make the same trade.
Copy trading is one of the simplest ways to benefit from another trader’s expertise. It also means that you retain complete control over the outcome. You can still close trades and open new ones whenever you want.
You could potentially make money by copying another trader’s skills and experience. As a result, it is ideal for beginners because they do not need to fully comprehend the market. Instead, they can rely on the knowledge of other traders to make sound decisions.
Even if you already have a good understanding of the market, copy trading can be useful. Because it is less hands-on, copy trading can free up some of your time. Observing how other traders make decisions can also help you learn about the market and develop strategies that work for you.
Copy Trading Pros and Cons
- Convenient for Beginners: This is a convenient way for beginners because you don’t need global knowledge of the principles and nuances of the market. Copying trades of successful traders will bring this knowledge with minimal risk.
- Understanding how the Crypto Market Works: Since you’re following expert traders, you can make informed trades without having to do all the research and learn about cryptocurrencies yourself. Copy Trading lets you closely see what other investors are doing, so you get a lot of insight into how the crypto market works.
- Diversification of Portfolio: Using another investor’s ideas makes your portfolio more diverse. Instead of sticking to strategies you personally use, Copy Trading lets you diversify and try out other people’s tactics and expose you to learning new strategies.
- Lower Fees: The fees associated with copy trading can be cheaper than paying an investor to manage your crypto trades for you.
- Time Efficient: Copy trading has an automated mode that can significantly save time. With Copy Trading you can free up your time for other matters while the software does the work for you. Thanks to this, transactions will be placed as quickly and efficiently as possible.
- Reduce Risks: This is a good risk-reduction solution. Because in this way a trader can maximize profits and learn more about the path to success.
- Access to statistics: This is important data that enables risk management. You get to invest your money based on statistics, instead of letting your emotions impact your trades. The user can see the statistics and analyze the features of the trader’s work before starting cooperation with him.
- Less control: Every decision doesn’t have to be approved by you, so you lose some control.
- Master Trader mistakes: trades will only be as good as the trader you follow. Picking the wrong trader to follow can cause you to lose money.
- Systematic risk: Currency in emerging markets is more vulnerable to systematic risks. This means that a trader’s money could be locked up and they may be unable to exit their positions. This has happened in the past when countries have been overthrown and the capital has been locked up and is not allowed to leave.
- High-risk tolerance: Every trader has a different level of risk tolerance. You may run into problems if you use all of your savings to mimic a trader with a high-risk tolerance and a lot of money to play with.
- Market risk: Markets are hard to predict, and the trader who was winning yesterday can have a losing streak tomorrow. Remember that past performance does not indicate future performance.
- Learning limitations: While you can learn some lessons by watching more experienced traders, the learning potential is rather limited. Unless you already know the markets, it can be hard to tell why the trader you are copying does what they do and why their trades are winning or losing. Nothing beats your own experience when it comes to learning how to trade.
- Liquidity risk: Your trade may not be executed at the same price as the trade you are copying, or at all. Because of the time lag between the original and copying transactions, market conditions may change before your trade can be executed.
How to do Copy Trading
The exact steps to begin copy trading differ depending on the platform you choose. But most commonly, copy trading involves the following steps:
First off, you need to find a suitable platform that offers Copy Trading services. Try to select well-known Copy Trading providers with a long history, a solid track record, and preferably registration with at least one of the main regulators.
It is a good idea to test out and interact with the platform using a demo account before beginning copy trading for real.
If satisfied, select a trader to copy. Before deciding to follow a trader, carefully review their performance history. A good master trader to follow should be active, have consistent results, have a large number of followers, and have been trading on the platform for at least a few months.
Decide how much capital you want to allot to each trader you follow. Since you’re just getting started, you can start small and add more money to the trader later if you’re happy with how they’re doing.
Connect your account to the trader of your choice and sit back, waiting for results. Following that, the trading platform will automatically copy each move made by the chosen traders into your trading account.
If you are pleased with the trader’s performance, you can increase the amount of money you gave them.
Where to Copy Trade
To begin copy trading, users must first locate a copy trading platform.
Here are some of the best copy trading platforms:
BingX is a copy trading platform with over 1 million users within 100+ regions, BingX provides over 300 cryptos ranging from Bitcoin, Ethereum, Dogecoin, Safemoon, Solana, etc. To reduce risks, users can first use a demo account for copy trading. Using key indicators like the trader’s account assets, cumulative P&L, 30D profit rate, maximum drawdown, etc., users can study the strategies while making a profit.
With the feed feature, traders can now post their speculations on future trends and insights, thus encouraging interactions between copy traders. BingX’s copy trading system also supports DeFi, NFT, indices, commodities, forex, and Layer 2. In order to display traders’ performance in a more comprehensive way, BingX traders can now enrich their homepage by accessing another exchange’s API.
LEARN MORE: BingX Review
Bybit makes it simple to find traders to copy, automatically open and close the same trades they do, and watch your crypto balance grow. To profit from their work, principal traders can allow others to copy their strategies and trades via the Bybit platform. In exchange, they receive 10% of the profits earned by each follower.
The platform brings together experienced principal traders and new traders to create a win-win cryptocurrency trading experience for all. Bybit currently supports up to 15 trading pairs, including BIT/USDT, ETH/USDT, XRP/USDT, and a number of other highly liquid pairs. This means that volume and trade execution rarely cause issues.
You simply set the parameters (such as your preferred leverage) for your copy orders after selecting a principal trader to copy. Then, immediately after your chosen principal trader places a market order, all new copy trades will be initiated via a market order based on those parameters.
LEARN MORE: Bybit Review
As a pioneer in social trading and copy trading, eToro is one of the best crypto copy trading platforms for beginners looking to connect, follow, and profit from the expertise of other traders. eToro’s crypto copy trading platform is both unique and functional, with some of the industry’s most innovative social trading features.
The platform currently supports over 16 cryptocurrencies in addition to stocks, commodities, and currency pairs. Whether you want to trade Bitcoin, Apple stock, or gold, eToro makes it simple to connect with the world’s largest social trading community and learn from a diverse range of traders and strategies.
To dispel any doubts or concerns about the profitability of a specific crypto-copy trader, you can see how many times a principal trader has been “liked”—and even read comments made by fellow copy traders. You can also adjust your risk and exposure levels on the platform, so you’re not completely reliant on the activity of another trader.
LEARN MORE: eToro Review
Copy Trading vs Social Trading vs Mirror Trading
The process of copying another trader’s trades is known as “copy trading.” Instead of replicating a strategy, you replicate every action of the trader you have chosen to emulate. Manual copying can be accomplished by making the same trades as the chosen trader.
However, modern providers of copy trading services enable the process to be completely automated. In this case, all you have to do is decide which trader (or traders) to follow and how much of your account capital to allocate to that trader.
Following that, copy trading is completely passive. The obvious advantage of copy trading is that it frees up your time for other activities while also allowing you to benefit from the expertise of more experienced traders. However, the learning potential is restricted. You also give up control over your trading decisions, though some platforms allow you to set your own risk parameters and even choose which trades to execute.
Mirror trading is the practice of replicating the strategies of a group of traders. Rather than following a specific trader, mirror traders imitate a strategy that could be created and used by any number of traders.
Mirror trading is accomplished by manually executing trades in accordance with the chosen strategy. It can also be automated with the help of robots and expert advisors. Mirror trading typically takes less time and effort than social trading, especially when automated.
Another advantage of this method is that technical analysis strategies can be applied to any number of assets. This type of trading provides less flexibility than social trading, as you are expected to follow the strategy blindly. The only choice you have is what strategy to use and when to stop using it if you do not like it.
Social trading is the practice of traders sharing their ideas and plans through social media, forums, and other channels. It does not include any trading automation. Each trader should decide which strategy to employ or devise their own based on the ideas shared by other traders.
It is the most time-consuming and labor-intensive trading method on this list. It also frequently necessitates some level of knowledge, so it is better suited to more experienced traders. However, new traders can benefit from the experience of their more experienced peers.
While it takes more time and effort than other types of trading, the advantage of social trading is that it allows you to learn how to trade and understand markets. It also gives a trader complete freedom to mix and match different strategies and trading styles, not requiring them to blindly follow other traders and their strategies.
what is copy trading in crypto: Bottom line
With this guide, you now know what is copy trading in crypto as its one of the simplest ways to get started in trading because it simply involves copying the actions of more experienced traders. It is especially beneficial for new traders because it allows them to participate in markets without prior knowledge while also learning from professional traders.
More experienced traders can benefit from copy trading by watching and learning from their peers with more knowledge and experience, as well as supplementing their profits from regular trades with a passive income. However, copy trading, like any other strategy, has drawbacks and risks. Finally, you relinquish control of your funds to the Master Trader.
You will also not learn much by simply watching other people trade without attempting to trade yourself. You won’t learn much if you just watch other people trade without trying to trade yourself. Finally, if you are serious about trading, copy trading should be nothing more than a starting point (i.e., a pacesetter). You should begin trading after gaining some market knowledge and accumulating some capital.