Copy Trading vs Traditional Trading: A Comprehensive Comparison



No one can deny the benefits of using automation over manual trading. There have been numerous surveys indicating that the vast majority of fund managers and experienced traders use bots. However, crypto copy trading is often discussed as something that people should touch with pole. Is it true that you can outperform experienced retail traders by simply using conservative strategies and never engaging in riskier investment methods?

The Core Argument: Copy Trading vs Manual Trading

The “DYOR” motto is one of the most frequently told to newcomers by the crypto community. The abbreviation stands for “Do Your Own Research” which is a valid approach when trying to evaluate a long-term commitment to an up and coming DeFi platform. However, it is less useful for people interested in active trading.

Nevertheless, countless influencers say that copy trading is not real investments while pushing their own narratives and often providing trading signals which are just a weaker version of copy trading since you need to everything manually.

Manual trading has its own advantages and downsides. However, making a comparison of Manual Trading vs Social Trading is like comparing apples and horses. These are two very different approaches to crypto investing.

Differences between Copy and Traditional Trading

When we say “Copy Trading” we mean it. The contemporary landscape of the cryptocurrency industry allows retail traders to use a wide range of different tools including advanced automation platforms offering various social trading products including direct copying of one’s actions on the market.

Here’s how you do it on a platform like WunderTrading:

1.       You go to the marketplace or the list of traders to search for suitable managers to follow.

2.       You start following top performing retail traders and launch a separate bot that copies their actions.

3.       The bot can be adjusted to automatically place delayed SL/TP orders to minimize risks.

4.       Thanks to the direct communication between an exchange and an automation platform, all orders are executed instantly.

Compare this process to what a retail trader has to do to place an order manually (even when receiving trading signals from a third party):

1.       You get a trading signal from an influencer and verify it using a TradingView strategy tester.

2.       You go to the exchange and start placing an order using recommendations provided by the signal creator.

3.       Each step of the process must be done manually using the user interface.

4.       You place an order and wait for its execution.

The second option feels the same, but there are several crucial differences. Let’s take Binance copy trading bots as an example. It takes significant time to open the terminal, set up an order, place stop loss and take profit orders, and confirm their execution. You will also need to check if the signal works for Binance traders. A signal provider may work specifically with the OKX exchange and produce signals that will won’t work or work less efficiently on other platforms.

When you use automated trading systems using copy trading functionality, you can choose retail traders who work on the same exchange as you. Everything is done via an API connection meaning that every single order is placed and executed instantly with delayed SL/TP orders deployed automatically.

How to Choose between Copy and Traditional Trading

There are benefits to trading only manually, but they are few and far between. While some people are capable of accumulating the necessary experience and knowledge to trade without any assistance, the vast majority of investors flooding the crypto industry are newcomers without any prior exposure to the blockchain ecosystem.

Learning the intricacies of this new financial system can be quite challenging and many people simply cannot adapt quickly enough after spending decades investing in real estate and the stock market. Copy trading is the only viable way for them to actively trade unfamiliar assets while learning new tricks from people they are following.

When it comes to copy trading vs traditional investment methods, the choice is simple — you need to use automation and social trading to at least some extent until you feel confident enough to start buying and selling crypto without any advice. The good thing is that you can get started quickly thanks to the diversity of financial products available to all retail traders.

How to Start Copy Trading on Binance

There are only two components of an automated trading system using social elements: an automation vendor and an exchange. Let’s take Binance and WunderTrading as an example of how you can start copy trading. The former is the largest centralized cryptocurrency exchange in the world with a mind-boggling 17% market share globally. The latter is a technologically advanced automation service provider that has a diverse marketplace.

Here is a simplified version of a step-by-step guide on how to get started with copy trading using these two platforms:

1.       Log in your Binance account or create a new one if you don’t have one.

2.       Go to account settings and obtain the API key.

3.       Log in your WunderTrading account or create a new one if you don’t have one.

4.       When prompted by the website, use the API key to connect your exchange account.

5.       Go to marketplace and use the filter to view only traders who work on Binance.

6.       Clock “follow” next a trader you are interested in working with.

7.       Go to “My Bots” and launch the copy trading bot.

Note that you can always follow traders who provide their services without any fees and commissions. Another important note is that bots can be adjusted and instructed to place stop loss and take profit orders. You should always set SL/TP values for your orders to protect the portfolio from risks associated with copying trades made by other retail traders.

Benefits of Copy Trading

We have already talked about several key advantages of using copy trading as your main method of investing in the crypto industry. However, some benefits are less apparent than others. Here are several more upsides to using an automated crypto trading platform to copy actions of experienced retail traders.

  • Build a balanced portfolio using risk assessment metrics. Automation platforms featuring copy trading usually provide the evaluation of risk styles of traders featured in their marketplaces. You can follow aggressive managers and more conservative ones to build a balanced portfolio with a moderate risk (on average) profile.
  • Copy trading can be limited to just a portion of your portfolio by adjusting position size for any individual copied trade. You can also create a separate trading account with an exchange that you like and allow your bots to trade using only it. This is a perfect way to limit the exposure of your portfolio to risks associated with using copy trading tools.
  • It can be beneficial to use copy trading as a source of valuable insights. Learn from retail traders you follow by tinkering with orders and trying to understand why they take certain market positions and how they react to events in the blockchain industry.
  • You can also become a signal provider. Many companies have their unique partner systems where they work with retail traders who are willing to become managers. They must show a good performance across at least a six months period and also share their commission with the platform. Some exchanges offer their traders such deals and many automation vendors do so as well.

Disadvantages of Using Copy Trading

Despite having a plethora of upsides, social trading is also a source of serious dangers. Here are three main issues with it:

  • Trading decisions are made by another person. When you have a fully automated copy trading system in place, you don’t have a say in how and when followed traders decide to enter the market which can be troublesome for some portfolios. It means that a careful investor has to pay attention to each order placed by their copy trading bots.
  • Past performance does not guarantee positive results in the future. Many retail traders who managed to achieve the necessary thresholds to become signal providers may use inconsistent strategies that fail under various market conditions. You should never expect that a trader you chose for excellence during the last three months will deliver the same performance over the next quarter.
  • You need a larger portfolio to benefit from copy trading compared to traditional manual trading. Retail traders often require their followers to invest a certain amount of funds before they can start copying their trades. Also some aggressive strategies require you to open multiple positions at once for protection which can be avoided when trading manually.

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