A Comprehensive Guide to Copy Trading Investments: How to Build a Profitable Portfolio



It is possible to use automation in general and various types of social trading tools in particular to build balanced portfolios with a controllable risk level. Whether you want to use a copy trading platform or simply have a couple of traders that you follow on social media, it is possible to use these methods and tools to build a good portfolio.

Understanding Copy Trading and Its Potential for Profits

Let’s talk about an average copy trading strategy that a regular crypto investor might use. Usually, you go to an automation platform such as WunderTrading and check their offerings to pick the right traders for the job. Some centralized exchanges and brokerage service providers also have various types of copy trading investments offered to their clients.

However, using these tools and building a profitable portfolio are not the same. Understanding the limitations and benefits of social trading is highly important if you are interested in investing through copy trading.

First and foremost, here are some reasons why using copy trading software can be beneficial:

  • It is a good way for newcomers to get started with crypto investments. The sheer size of the cryptocurrency industry can be very intimidating to novices. However, everyone must start somewhere. Social trading is a nice entry point that does not require understanding the nuances of technical analysis and intricate relations between different digital assets right away.
  • Mirror trading can be a valuable learning experience. When you receive copy trading signals, you don’t need to execute them. However, analyzing what experienced traders prefer doing and how they react to various industry events can be very insightful and provide many practical tips to attentive investors.
  • Fully automated systems are capable of immediately repeating actions of followed traders. It is a good thing for investors who want to use the “hands off” approach to their investments and spend more time away from managing their portfolios.

These are surface-level advantages that are apparent. The potential of copy trading tools is quite high, but it will always be limited to the highest potential of chosen retail traders who you decide to follow. It is always better to learn technical analysis and the intricacies of the crypto industry to trade personally instead of following signals from others.

Unfortunately, it takes time (years of practice) until you can say that you understand the market well enough to actually make money consistently and outperform managers. While you are trying to master the art of trading crypto, you should focus on copy trading and preset automated trading systems like DCA buying or GRID bots.

The Benefits of Copy Trading for Profits

Many copy trading advantages come from understanding why you don’t just follow experienced investors on social media and ask for advice. Social trading is also wildely different from simply receiving signals from unverified sources like Telegram channels and Reddit. Following successful traders on highly specialized automation platforms has many unique advantages.

Here are some benefits of using platforms such as WunderTrading:

  • Choosing from a pool of traders working on the same exchange as you. There are noticeable discrepancies between trading volumes and orders on each individual CEX platform. It means that you need to follow people who specifically use services from exchanges that you use to trade as well.
  • Selecting traders based on their risk styles. It is possible to find traders who are very aggressive and trade frequently or investors preferring long-term market positions with a more calculated approach to each order placement. Following different types of traders is a form of diversification of investments within a portion of your portfolio dedicated to automation.
  • Analyzing performance across multiple periods. It is hard to follow an influencer on social media or an expert on a forum and check their trading history without reading a ton of posts and publications while trying to categorize and plot the data on a price chart. Many automation platforms make this information readily available to all users.

Remember that you can capitalize on various passive income opportunities even without any additional information, but when it comes to understanding the benefits of copy trading, it is important to focus on very specific advantages offered by specialized service providers like automation vendors. Copy trading is very different from many other forms of investments in the crypto industry.

Some experts believe that social trading is less effective than many other forms of capital allocation but it is true only in cases when investors actually know what they are doing. In many cases, people who are new to the crypto industry do not have the necessary level of expertise to reach levels of profitability higher than that of an average manager on a copy trading marketplace.

Selecting Profitable Traders to Follow and Copy

The current landscape of the cryptocurrency industry allows many retail traders with wildly different approaches to trading flourish and achieve success. It also means that you have a rich selection of managers to choose and trust them with your money. When there are too many choices, people struggle to make the right choice.

Diversity in the market is great, but you need to make a good pick which can be hard when you are presented with several hundred options. It’s the problem of hand soaps. If you see only two products, it is easy to pick the best. When you stand in front of a whole shelf with dozens of brands, you often just pick the cheapest or the most recognizable product instead of actually trying to identify the best option.

Before we talk about different methods of picking top performing traders on copy trading platforms, we want to give a very simple advice: try to minimize the number of traders that you want to choose from. Make a very simple rule that will immediately cut off a lot of candidates (for example, profitability across a three month period).

Analyzing trader’s performance metrics can be time consuming and challenging even when the available data is limited to just a couple of parameters. However, you need to focus your attention on trying to do your due diligence before committing real money to an investment strategy involving copy trading.

Here are some things that you must pay attention when selecting a trader to follow:

  • Risk style. Many automation platforms will provide this essential information and indicate whether a trader is aggressive or conservative. This metric will help people using risk management strategies and trying to build a balanced portfolio containing both aggressive yet risky options and more conservative assets.
  • Past performance. Profitability over a certain period of time (usually, a month, a quarter, and six months) is a good general indicator of whether a trader deserves to be followed. While past performance never guarantees future results, it is still the only way of gaging the potential level of profitability that can be achieved by a followed trader.
  • The exchange where they operate. We have already mentioned that this particular factor is quite significant. Do not work with traders who use a different exchange from yours. It can lead to catastrophic errors and losses of capital.

Tips for Building a Profitable Portfolio through Copy Trading Investments

With the addition of copy trading, a profitable portfolio can deliver stunning results. If you are interested in social trading, chances are you doubt your own ability to generate profits. People who lack the confidence to make bold moves often cannot reach the same heights as more experienced investors. It means that your portfolio underperforms if you do not include market positions that are chosen by traders with higher risk tolerance.

Here are some tips that you can use to build a good portfolio:

  • Diversifying your copied trades across different assets and strategies. Focus on following retail traders who have very noticeable preferences and focus on working with different types of assets. Some investors are better at working with Bitcoin and PoW tokens in general. Others will have better success with Ethereum and PoS tokens.
  • Monitoring and adjusting your portfolio regularly. Some investors believe that copy trading can be used on autopilot. Nothing can be further from the truth. Even if you fully automate copy trading and protect your portfolio with strategically placed stop loss and take profit orders, you will still see underperformances without constant oversight.
  • Limiting the amount of funds available to social trading. If you are using an automation platform, you can either use its tools to limit position sizes or simply create a new account on an exchange and move only a fraction of your portfolio there. Creating these limitations is the best way of ensuring that your copy trading tools do not lead you to uncontrollable financial losses.

Evaluating the Performance of Your Copy Trading Portfolio

Whether you are using a Binance copy trading bot or an army of bots on multiple exchanges, you will need a good toolkit to manage them and monitor their performance. An automation platform such as WunderTrading will provide a suite of portfolio management instruments helping you control and adjust copied trades as you see fit.

It is highly important to have a routine related to tracking returns on investment (ROI) regularly. A weekly evaluation is a good idea. It should be tightly controlled and the performance must be measured to make appropriate adjustment and optimize the overall effectiveness of your portfolio.

Another important thing to do systematically is comparing performance against benchmarks or other investment options. A benchmark can be the best result you achieved over a certain time frame or profitability goals that you set for your portfolio. It is also quite important to regularly check if your copy trading investments keep up with your long market positions or staking.

Here are some more tips to evaluate the performance of your copy traded positions:

  • It is important to consider time frames. Using calendar periods like months or weeks is useless when you are monitoring orders opened on Wednesday and closed on Friday. You should think about each copied market position as a separate entity in your portfolio.
  • Do not overestimate achieved results. Many retail traders who want to manage capital through copy trading often try to attract potential clients by entering risky market positions and hoping to make a big profit. If it happens, they can collect their fees from hundreds of hopeful investors. If they don’t, they simply liquidate a position and start again. A single big spike does not guarantee consistency.
  • Try to give followed traders a benefit of the doubt. Many passive income options in the crypto industry provide fixed returns (lending or staking). However, some retail traders have market positions that pay off greatly under certain conditions. If you think that a trader underperforms compared to fixed income assets, you should either reevaluate your copied trades or believe in the analytical skill of a followed retail trader.

Unlocking the Potential of Profits through Smart Investing via Copy Trading

Our short guide to copy trading investments demonstrates that it is possible to build a balanced portfolio using only social trading instruments. However, you need to commit a sizeable portion of your assets to this approach. Otherwise, you won’t be able to keep up with some followed traders using massive market positions to extract profits whenever an opportunity presents itself.

Start copy trading today and use our tips to make money without exposing your portfolio to excess risks. The sooner you start, the more time you will have to perfect your strategy!


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