What is copy trading?
The name "copy trading" speaks for itself. It is a method of trading on financial markets that allows the automatic copy of transactions of other traders. Another name for copy-trading is copy trading signals. The mechanism of their use is quite simple, and it is not difficult to understand.
The trader decides how much to invest and automatically copies all the dealings of the selected trader in real-time - any deal opened by the trader is also displayed in his account.
There are two types of copy trading: automatic and manual.
- Automatic. This method is widespread among beginner traders. It is only necessary to choose a platform, register, pay the tariff and choose one or several offered traders. Copying of transactions will be made automatically and will be displayed in his personal account. Automated copy trading is convenient because it saves time and, moreover, is a passive source of income. Some beginners choose to learn trading from professionals in practice.
- Manual. The investor chooses a trader whose strategy he will copy and manually places selected orders in his exchange account. This is a good option for those who already have basic procedural trading skills and knowledge about cryptocurrencies. Receiving a hint from a professional trader, the investor trades himself. There are even closed channels or groups created in social networks, where investment gurus advise when to buy and sell assets. The manual method is useful because it helps the investor to evaluate the strategy before copying.
In copy trading, the trader has no influence on the deal and gets the same result as the trader he chose. In other words, copy trading is one of the easiest ways to take advantage of other traders' expert knowledge. Copying trades allows you to potentially benefit your skills.
This way, you don't need in-depth knowledge of financial markets. Traders can copy deals of the main trader according to his strategies, believing that he has experience in the digital market. The one who copies trades may be completely new to investing or completely ignorant of the specifics of the market. This is one of the easiest ways to get a regular income from investing without spending a lot of time studying the market or charts. The main trader will receive a portion of the profits or set a service fee for each copied trade.
The history of copy-trading began in 2005 when traders started copying specific algorithms developed during automated trading. Brokers quickly realized the potential of systems that allowed traders to automatically copy deals. It was not necessary to constantly monitor trading signals via e-mail or in traders' chats. Thus, this perspective trend was discovered and quickly gained popularity.
Copy trading is convenient not only for beginners who have just started trading cryptocurrency but also for professionals. They create a good reputation for themselves if their transactions are copied by many other traders. In the future, they can become financial advisors - investors can entrust their assets to such traders. This is quite a serious professional growth, which is the dream of many traders.
Benefits of copy trading
Numerous advantages of copy trading are the reason for its popularity.
- Sharpening trading skills. Copy trading allows one to follow the trading activity of successful traders and learn from their years of experience. In the process of copying other people's trades, you learn how to achieve success and develop your own copy trading strategies.
- Diversification. With a huge variety of trading strategies, you can spread your funds among several traders and different assets. Spreading your risks allows you to neutralize losses incurred by one of the selected traders. In addition, you can potentially make a profit in different market conditions.
- Free time. You continue to trade throughout the day - if your chosen trader does. This means you have time for other activities and hobbies.
You can also spread risk across your trading portfolio, allowing you to earn on both the rise and fall of cryptocurrency and trade over the long run.
Is copy trading useful for a beginner?
Entering the cryptocurrency market requires not only knowing the answer to the question - what is copy trading in crypto? - but also involves studying the specifics of the market, time, effort, and willingness to take risks. Therefore, for some beginners, copy trading may seem like the best solution. However, there are several factors to consider.
- Firstly, copying trades of professional traders can't guarantee income. Any trader is a person who can get tired or make mistakes. There is no such thing as trading only in profit.
- Secondly, the copy trader pays for using the platform to developers, for using strategy to the trader, and for transactions to exchange. Such payment is called a trading fee. It is important to consider these factors when calculating the deposit and potential profit.
- The trading can save investors time and effort. But one cannot count on a stable and high income. As it was said above, professional traders can make mistakes too. The amount of income, in turn, depends on the investment amount. Not every investor will decide to trust a stranger with a large sum, keeping in mind all the costs and risks.
Some copy trading platforms reduce risks by allowing you to connect several trading accounts to different traders and by providing a risk management system. But commissions become higher. Sometimes copy trading attracts newbies with an opportunity to learn from the trades of experienced traders. Certainly analysis of profitable and loss-making deals can give valuable knowledge to a beginning trader.
Differences between copy-trading and mirror trading
Although these trading methods may seem similar, copy trading and mirror trading are two different styles of trading. Copy trading is an improved version of mirror trading. The last one implies that investors follow every signal and trade automatically. Unlike the first one, traders who choose this strategy can choose which deals they will copy.
Mirror trading is more suitable for traders with large amounts of funds, as the automated system imitates every signal and trade of the main trader, exposing the copied trader to large fluctuations in his account. Copy-trading, on the other hand, is more suitable for those who are low volume traders or beginners since they can allocate a certain percentage of their balance to an individual strategy and follow several traders at the same time.
How do I start copy-trading?
First of all, you need to choose a system with which you are going to copy-trade. It can be a platform specifically created for this purpose or any crypto exchange that supports copy-trading functions. However, it is sometimes not as easy as it may seem, because as of 2022, there are many services that automatically copy trades of successful traders from all over the world. As a rule, such platforms are created by brokers to attract new clients.
Therefore, in order to choose the best copy trading platform, you should pay attention to the following aspects.
- Legal. Is the platform of your choice registered? If so, where is it registered? Does it have a license?
- Service. What set of tools is offered? Is support available and how to contact it? What brokers is the cooperation offered with? Is the tracking accuracy of transactions high?
- Customization. Of the platforms that fit the above criteria, you should give preference to the one that offers a simple and user-friendly website interface and wide range of software settings.
Try the following strategy. Type in a search query “top copy trading platforms” and look carefully at a few positions on its top lines, adhering to the advice we gave above.
Next, choose the trader that best suits your goals. In order not to make a mistake in choosing the one on whose results your income will depend, approach the choice carefully and pay attention to the following parameters:
- The length of his trading history starts from one year or more.
- The number of subscribers in trading networks - almost no one will subscribe to a bad trader.
- Stability. If the trader has been consistently showing a profit over the past few months, most likely this will not change in the short term.
Determine a convenient amount of investment and decide how to distribute it among those traders, whose trades you are going to copy. Be balanced and don't invest all of your funds in one trader - determine the amount you are willing to allocate to each selected trader. Customize your copy trading platform to your needs. Many systems offer deep customization of risk settings, as well as the ability to choose fully automatic copying or only partial copying. Invest extra money if you like a trader's results. You can change your chosen trader or traders at any time but remember: to copy trades of each individual trader you need a separate investment account.
Usually, there are no additional commissions or fees for copy trading - you only pay for profitable trades. You can only copy trades of those crypto traders who have allowed themselves to do so. Many copy trading platforms allow you to track the most successful trades on exchanges and then choose your favourite trader and copy his strategy and trades.
In conclusion, it can be said that copy trading has widened the opportunities for beginner crypto investors and allowed them to join the ranks of professional traders. Thus, it helps financial integration and acts as an equalizing factor in the market. Copytrading is a modern and popular tool for earning income from cryptocurrency trading. It gives an opportunity to make a profit using the experience of professional traders who have shown decent trading results. But before you connect a copying service, you need to carefully assess the statistical indicators and the stability of the trade of the selected financial advisors. It is also important to be careful with the settings of the necessary parameters for copying trades, such as copying volume, maximum drawdown, amount of rewarding the trader, and so on.