Online searches for ‘copy trading’ have hit their highest point in five years spiking 174%. Google Trends data also reveals that searches for ‘copy trading‘ are expected to hit an all-time high, jumping 488% this month compared to the average.
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Cryptocurrency expert Anton Palovaara from Trading Browser offers a comprehensive guide on copy trading, the best platforms to use, and the pros and cons of the investment type. Beginners to the crypto trading world can utilize copy trading to become a more confident trader.
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What Is Copy Trading?
Crypto copy trading is a type of investing where you copy the trades of other already profitable traders. This works by connecting two traders where one is the performing trader, and the other is the copy trader. Once a trader is copied, all his trades will be mirrored on the other account automatically.
Copy trading is quickly becoming one of the most popular crypto day trading strategies, and the fact that traders keep improving their results to attract investors, the demand for good traders is steadily increasing.
There are two components to each successful copy trade:
- The copy trader = You
- The performing trader = The trader who is doing the actual trading
As a copy trader, you rely purely on the performance of the trader you are copying for both profits and losses. When the trader makes a profit, you also profit and share a part of your winnings with the trader.
The amount of winnings you divide between each other varies from platform to platform. You can also decide how much capital to allocate to each trader. In theory, you could copy as many traders as you would like with a very small stake.
How To Choose The Right Platform
When choosing a copy trading platform, there are several factors you should consider:
- Fees: Does the platform charge a percentage of your trades or a flat fee? Some platforms require a minimum deposit before beginning copy trading, whilst others allow you to start for free.
- Particular cryptocurrencies: Does the platform offer a specific cryptocurrency that you want to trade? Some platforms only offer a limited selection of currencies, so make sure your favorites are there before signing up.
- Security: Has the platform been hacked in the past? Research to ensure this is not the case, and ensure the platform uses secure methods to protect your personal and financial information.
- Reviews: Read the reviews of the platform before deciding to use it. This is a red flag if other users rated the platform poorly.
- Cancellation: Does the platform offer trade cancellation at any time?
- Metrics: Can you filter traders by profitability, return on investment (ROI) and the number of traders?
- Regulation of the platform: Using unregulated platforms can be risky as there is often an absence of security and customer support.
- Minimum investment: Consider how much money you wish to invest initially.
- Mobile app: This is the most convenient way to trade if you are on the go.
How To Choose The Best Crypto Trader To Copy
When it comes to copying other traders there is no one-size-fits-all answer to the question of who is the best trader to copy and it might take some time before you find your perfect match. Different traders have different strengths and weaknesses, so it is important to find a trader that aligns with your own trading style and goals.
That said, there are a few general things to look for when choosing a crypto trader to copy:
- Make sure that the trader has a good track record. Look for someone who has consistently made profits over a long period of time, not just a few months.
- Find a trader who trades frequently and who is up to date with the market moves. Traders who are not active every day may be prone to making more mistakes.
- Make sure your trader is a good communicator and is transparent about their trades. In this way you can gain understanding into the rationale behind each trade. This will teach a lot about how to tackle the markets and give you new angles to see the price action.
Copy Trading Tips For Beginners
There are some things to consider before copy trading if you are a beginner in the world of cryptocurrency:
- Research top traders: You need to have a serious approach to this and spend some time testing different platforms and researching some of the top traders on each exchange to find what you are looking for.
- Quality above quantity: Check the difference between each platform’s revenue share, as some platforms have higher rates. This is most likely because they have a higher quality among their traders.
- Testing with small amounts: It is well worth the time to test out traders with a small amount of capital before you go all in and trust one trader with your full portfolio.
- Consider if you are comfortable with leverage: Some traders will choose to trade with leverage, and you need to figure out whether you are comfortable with this or not. Leverage increases the earnings potential drastically through borrowed capital but can also cause much larger drawdowns to your capital.
- User-friendly mobile apps: It is recommended to use a platform that has a mobile application for its copy trading interface. This lets you follow your performance on the go, and in the case of a market crash or a significant correction, you can anticipate the coming losses by closing out all your trades.
The Pros And Cons Of Copy Trading
- Profits could be smaller: You may not make as much money as you could if you were a successful trader yourself. This is because you would only earn a percentage of the profits from the trader you are copying.
- It can be risky: There is also a possibility that the trader you have copied will lose money, therefore losing you money too.
- Less control: When copying another trader, you would have less control over your trades than if you were trading on your own. You are ultimately trusting the strategies and decisions of another person, so you must expect to be left in the dark about certain trade decisions.
- Diversification: Copy trading can help you to diversify your portfolio. By copying the trades of other traders, you can gain exposure to various assets and strategies. This can help you to reduce your overall risk.
- It can be free of charge: it is completely free to sign up on an exchange and start copying other traders. This is something that most traders look past when they see this opportunity. Consider how much it would cost to hire a personal trader who handles your crypto holdings. Yes, there is a revenue share regarding profits and losses, but there is no down payment to get started.
- Time-saver: copy trading can help you to save time. Instead of spending hours researching different trades, you can copy the trades of other traders. This can free up your time to focus on other things.
- Learn from professionals: copy trading can help you to access expert knowledge. By copying the trades of experienced traders, you can tap into their knowledge and expertise. This can help you to improve your own trading skills over time.
Overall, using a crypto copy trading platform has several benefits that make it an attractive option for many investors.
Anton had these final words of advice:
“As long as you can make the time to research the different traders at the top, copy trading can be a great way to make some passive income. It offers many advantages, such as convenience, flexibility, and affordability.
What makes copy trading stand out compared to other ways of investing your money is that you don’t have to worry about the complicated technical aspects of trading the markets. All you need to do is choose a reputable platform and copy the trades of successful traders.
It is a new way of managing your crypto finances and can be highly profitable once you find a professional who knows how to trade.”
About Trading Browser
Trading Browser reviews and evaluates top crypto exchanges on the market so investors don’t have to. It provides smart guides and trusted platforms to its audience with valuable information surrounding cryptocurrencies.