Crypto Copy Trading Demystified: Your Shortcut to Smart Crypto Investments

If you are a novice in crypto trading or have just recently heard about crypto trading, but are not sure whether you should pursue this enterprise because of your inexperience, then Crypto Copy Trading is something that might prove very helpful to you.

To be clear, we are not suggesting that you should pursue copy trading just because you don’t have the basic knowledge of cryptocurrency, crypto trading, or the workings of the crypto market in general. It’s helpful to familiarize yourself with the basics of crypto trading so that at least you know what you are doing. 

Traders can also learn and gain some basic skills like learning to be patient whenever selecting a trade to open, learning how to apply leverage on a trade, and knowing the best time to close a trade when you are going in profit. Remember, the crypto market is very volatile. If your trade is going in profits, then it is not guaranteed that if you don’t close it at an ideal time, then your profit margins will remain the same. 

Experienced traders who don’t want to spend hours analyzing the market and devising trading strategies accordingly can also benefit from the features of copy trading. 

So how can you use the copy trading feature on a crypto exchange? The simple answer is that exchanges provide you with a list of traders who have a higher success rate in their trades. The success rate can be measured according to the Return on Investment on their trades. From the list, if you think that following a certain trader’s trades will help you in achieving your goal of getting some financial reward, then you can enable notifications so that whenever they open a trade on the exchange, you copy them.

Let’s take a practical example to understand copy trading. Imagine one trader deciding to invest 20% of their portfolio in a specific cryptocurrency like Bitcoin (BTC) or Ethereum (ETH). Now, someone using a copy trading platform would also allocate the same 20% of their funds to buy the same cryptocurrency.

However, copy trading offers flexibility. The person following the trader can adjust additional parameters like the investment amount and leverage and take profit or stop loss levels according to their preferences. So, even though they are mirroring another trader’s moves, they still retain some control over their investment choices.

Difference between Crypto Copy Trading vs Mirror Trading

Copy trading and Mirror trading are both social trading methods in financial markets, but they differ in execution. In Copy trading, you are copying the trades of your preferred trader in real-time. On the other hand, Mirror trading involves setting up rules or strategies on your computer, which must be used to copy the moves of the experienced trader automatically.

The predefined trading strategies on your computer will execute when your experienced traders open a trade.

So, if the trader you’re mirroring buys or sells something, your account does it too, but it might not happen at the same moment. It’s like having a robot that tries to mimic the trader’s overall strategy, making similar choices based on what the trader does historically. It’s less immediate than copy trading, but it will ease your reliance on having a computer available to you at all times. 

Difference between Copy Trading vs Social Trading

Social trading involves a community of traders banding together, discussing ideas, and sharing trading strategies before planning to execute their ideas. Social trading emphasizes more on collaboration, learning, and following different approaches when selecting a trade to open. In crypto copy trading, the focus is primarily on copying the trades of a specific trader.  

Advantages of Crypto Copy Trading

There are benefits to Crypto Copy Trading:

1. Copy Trading has the feature of being an automated process. When a trader has set the parameters to follow, the copy trading software makes sure to comply with the set parameter whenever the experienced trader opens a trade.
2. It helps traders who are using copy trading software to save time and effort when it comes to analyzing the crypto market.
3. Copy trading is especially helpful for beginner-level traders who aren’t completely familiar with the workings of the crypto market but are eager to learn and dip their toes in it. 

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Disadvantages of Copy Trading

While crypto copy trading holds some benefits, there are some downsides to it as well, that anyone who wishes to start copy trading must know about to save themselves from unwanted surprises later on in their trading career. 

1. It should be noted that the cryptocurrency market is very volatile. Traders often find themselves in situations where all their mathematical evaluations and analysis might go out of the window if, for any reason, the market makes a sudden move in either an upward or downward direction.
2. So even if you are following an experienced trader who has a very good Return on Investment (ROI) history, it doesn’t necessarily mean that all his trades will run you toward profit. Any unanticipated move and you can see all your funds drain from your account as well, so you must do your due diligence and familiarize yourself with the risks associated with Copy Trading and cryptocurrency in general.
3. Failing to closely monitor your trades or neglecting to set stop-loss orders can result in significant losses, potentially wiping out your entire investment. The past success of a copy trader doesn’t always guarantee a promising copy trading future. 

Conclusion

Copy trading is an easy way of making crypto trades. Copying the trades of experienced traders lets you automate your trades and also, at the same time, allows you to learn how the market works. Make sure you do some research before you start to follow a trader to increase your chances of success.