Table of Contents
- What is copy trading
- How does copy trading work
- Who is copy trading for?
- What are the pros of copy trading?
- What are the cons of copy trading?
- Is copy trading the best option for you as a crypto trader?
What is copy trading in Crypto?
Copy Trading, also known as Social Or Mirror trading, is a strategy that allows traders to mimic the trading decisions of seasoned and successful traders.
Imagine having a smart elder brother in the world of investing in crypto. This elder brother has been crypto trading for way longer than you have. So then you have a platform that automatically helps you copy the exact moves of your imaginary crypto-elder brother in real-time without having to do so much by yourself. It's an incredibly helpful strategy for people learning to trade for the first time.
Copy trading started when online trading became a bit popular in the mid-2000s. Back then, eToro (founded in 2007) began making it relatively easy for regular people to follow and copy the moves of seasoned traders. It began with trading strategies, but as technology evolved, automated systems came into play. It allowed users to copy trades automatically in real-time.
How does copy trading work?
There are three participants in copy trading:
The Online Broker: this person provides the platform for trading. Only some trading brokers offer this service, so you need to research which ones do.
The Master Trader: This is the cryptocurrency elder brother. It's a person who has been in the industry for many years and has trading experience. They are the ones being mimicked or copied.
The Copiers: These are the followers, the people who follow master traders. Their goal is to generate returns on their investment by following the master traders who have been trading for years in return for a small fee.
Who is copy trading for?
Copy trading is a fantastic strategy for beginners in crypto trading or for people who do not want to be so active in trading.
What are the pros of copy trading?
- Copy trading is one of the easiest ways to get into trading. It allows crypto trading newbies to jump right into trading without having to read 200 books and watch 300 YouTube videos (like I did when writing this article) to learn how to trade.
- Crypto copy trading is a "huge timesaver." You don't have to figure out many details, and you don't have to spend hours watching the market. The experts you're following do all the work for you.
- It's a straightforward way to be diversified in the crypto trading industry. You can spread your money across different traders and strategies easily. It's a brilliant way to reduce risks.
- The last pro is that you can learn as you earn. Copy trading is like learning by doing. You see exactly how the experts trade and study it as you copy, which helps you understand how the market works better.
What are the cons of copy trading?
- There is a risk of losing your money. Even though you're copying experts, there's still a chance of losing money. While copy trading reduces the risk of active involvement, it does not eliminate the risk of financial loss. The market is unpredictable, and it is necessary to know that past performance does not indicate future results.
- You're going to have to give up control. When you copy-trade, you're trusting others with your money. Relying on the expertise of others means relinquishing control over your investment decisions. This might lead to missed opportunities (but it might also lead to good opportunities).
- The crypto market is like a minefield, very volatile. Rapid price fluctuations can lead to unexpected (negative) outcomes, even for seasoned traders.
Is copy trading the best option for you as a crypto trader?
Deciding whether copy trading aligns with your trading goals involves weighing various factors. Let's break it down.
Your risk tolerance:
Even with copy trading, there is an inherent risk. Understanding your risk tolerance is crucial. How much money are you comfortable with losing? Are you patient enough to work through price fluctuations? Is this a short or long-term investment? These are some questions you'll need to answer honestly.
Your knowledge and experience:
Consider your knowledge and experience in cryptocurrency trading. As said earlier, copy trading is an excellent starting point for beginners who want to innovate without diving into complex strategies. However, before trying copy trading, investigate and choose a reputable platform. Make sure the platform is secure, user-friendly, and has a record of stability Look up the performance history of potential traders you want to follow.
Your long-term goals:
Define your long-term investment goals. If you're looking for a general approach, copytrading might align with your objectives. On the other hand, if you have specific goals or want more control over your portfolio, traditional trading methods might be better.
How involved you want to be:
Consider how involved you want to be in managing your crypto investments. Copy trading offers a passive approach where you rely on expert traders to make decisions for you. If you prefer a more active role, traditional trading methods may be better for you.
To sum up
Copy trading is basically copying or mimicking the moves of a more experienced trader. It’s a strategy that can work for you as a beginner trader or if you are interested in passively trading crypto.
Q: Is copy trading profitable in crypto?
A: Copy trading can be profitable in crypto, but success depends on factors like the chosen strategy, the performance of copied traders, and market conditions. It comes with risks, and there are no guaranteed profits.
Q: How do you copy trades in crypto?
A: To copy trades in crypto, you join a copy trading platform, choose a trader to follow, and allocate funds to automatically replicate their trades. The platform executes identical trades on your behalf in proportion to your allocated funds.
Q: Is crypto copy trading legal?
A: The legality of crypto copy trading depends on jurisdiction. In many places, it is legal, but adherence to local financial regulations is crucial. Always check the legal aspects and regulations in your country.
Q: How do I start copy trading?
A: To start copy trading, choose a reliable platform, create an account, deposit funds, select a trader to follow, and allocate funds for copying. Follow the platform's instructions for setting up your copy trading preferences.
Q: How do I become a copy trader?
A: To become a copy trader, register on a copy trading platform as a trader, connect your trading account, and make your trading activities visible to potential followers. Traders earn a percentage of profits based on their followers' performance.
Q: Is copy trading good for beginners?
A: Copy trading can be suitable for beginners as it allows participation in the crypto markets without extensive knowledge. However, it's crucial to thoroughly research and understand the risks involved.
Q: Is copy trading easy?
A: Copy trading is designed to be user-friendly, making it accessible for both beginners and experienced traders. However, understanding the platform, associated risks, and the strategies of chosen traders is essential.
Q: What is another name for copy trading?
A: Social trading is another term for copy trading.
Q: What are the negatives of copy trading?
A: Negatives of copy trading include the potential for losses, dependency on the performance of chosen traders, and the risk of market volatility. Additionally, not all traders may consistently achieve profits.
Q: How much money do I need to start copy trading?
A: The amount needed to start copy trading varies depending on the platform and trader's minimum investment requirements. Some platforms allow starting with a relatively small amount, while others may have higher trade requirements.
Q: Can I make money from copy trading?
A: Yes, it is possible to make money from copy trading if the chosen traders perform well. However, there are no guarantees, and losses can occur. It's essential to diversify and manage risk carefully.
Q: Do people make money from copy trading?
A: Yes, some people have successfully made money from copy trading by selecting skilled and profitable traders to follow. However, individual results may vary, and losses are also possible.
Disclaimer: This article was written by the writer to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.