Crypto investors have been paying more and more attention to copy trading. Are there more benefits to this strategy than drawbacks? Does it make sense to try? Together, let’s solve it in this article!
How Does Copy Trading Work?
In cryptocurrency, copy trading is a type of social trading in which individuals, referred to as copiers, imitate the real-time transactions of more seasoned cryptocurrency traders. By imitating the tactics of traders who have demonstrated success in navigating the erratic cryptocurrency landscape, this strategy enables investors to enter the market. Additionally, it eliminates the need for copiers to conduct as much research, delve into the technical nuances of the cryptocurrency field, or maintain a constant watch on market movements.
The technique of copy trading is rather easy to comprehend: an investor joins their investment account to the trader’s and chooses a talented trader or signal source whose strategies they want to replicate. Once linked, all purchases and sales made by the selected trader take place in the copier’s account proportionately and concurrently. This synchronization makes it simple and stress-free by doing away with the necessity for manual involvement.
To gain a better understanding, let’s examine an example. Suppose you choose to imitate Alex, a trader who generates a 10% monthly return. You set aside $10,000 to replicate Alex’s trading strategy. In this manner, your $10,000 investment will match Alex’s 10% profit if he purchases Bitcoin for $90,000 and sells it for $99,000, giving you $1000. Your investment would lose a comparable amount if Alex lost money.
Benefits and Drawbacks of Copy Trading
Copy trading offers benefits and drawbacks, just like any other trading strategy. We’ve included the most important ones in the table below for your convenience.
How Can I Begin Copy Trading?
The following actions must be taken in order to become a cryptocurrency copy trader:
- Pick a trustworthy platform: pick a cryptocurrency platform that allows copy trading. Make sure the platform has a solid reputation, security features, and favorable reviews by doing some research on it.
- Create an account: sign up on the selected platform by confirming your identity and supplying the required personal data. Along with completing certain security procedures like turning on 2FA and clearing the KYC, you can also be required to present evidence of address.
- Funds should be deposited into your account when it has been set up. The majority of sites support a number of payment options, including bank transfers, credit or debit cards, and even cryptocurrency deposits. Some platforms also allow you to purchase cryptocurrency directly.
- Select a trader to copy by visiting the copy trading website and looking through the available traders’ list. Platforms typically show trading strategies, risk scores, performance indicators, and other information that can assist you in choosing which trader to emulate.
- Establish the copy trading parameters: choose your risk tolerance and the amount of money you wish to put in copy trading. To prevent significant losses, you might establish a maximum drawdown limit or decide what proportion of your cash you want to devote to each trade.
- To begin copy trading, turn on the copy trading feature after choosing a trader and establishing your preferences. The software will then immediately transfer the chosen trader’s transactions to your account.
- Keep an eye on your investments and make necessary adjustments to your portfolio on a regular basis. You can modify your settings or switch the trader you’re imitating if needed to account for shifts in the market or your risk tolerance.
Advice for Novice CopyTraders
Read the following advice and bear it in mind to have a better, less stressful copy trading journey:
- Investigate. Avoid mindlessly imitating any trader. Examine their track record, level of risk, approach, and evaluations. Make sure the trading strategy you select fits your investment objectives and risk tolerance.
- Begin modestly. It is advisable to begin with a little investment as a novice. This enables you to get knowledge and comprehension of the procedure without taking on excessive financial risk. You can progressively raise your investments as you get experience.
- Regularly check on performance. Even though copy trading is automated, you need still keep an eye on the performance of the trader you are copying as well as your portfolio. To reduce possible losses, think about moving to a different trader if their approach fails or their performance deteriorates.