Guide To Crypto Copy Trading
Copy trading has made a remarkable impact on global trading, but it can be a complex topic for newcomers.
At its core, copy trading revolves around learning from success. Just as making mistakes teaches you how to avoid repeating them and to achieve better results in the future, positive outcomes can show you how to keep succeeding too.
As a trader, you’re always on the hunt for any clues – however small – that might give you an edge in any positions that you might take, and signals may be just the thing to give you the edge that you’re looking for. When you get a new signal, you can use it to alter your trading guidelines, within the scope of your overall game-plan, hopefully boosting your chances of success. If you do give it a try you will find that the signals approach is more flexible than fixed and automated copy trading, but it’s going to be a good idea to adjust the size of your trade, stop loss and take profit settings before you get going.
Let’s take a closer look at what this means and how it applies to cryptocurrency trading.
- What is Copy Trading?
- Copy Trading vs Mirror Trading
- Copy Trading vs Social Trading
- Understanding Crypto Copy Trading’s Increasing Popularity
- How Does Copy Trading Work?
- Profit Sharing
- Depositing and Withdrawing Funds in Copy Trading
- Different Levels of Copy Trading Control
- Copy Trading Results with Zignaly
- Advantages of Copy Trading
- Disadvantages of Copy Trading
What does copy trading mean?
With copy trading, cryptocurrency traders can copy positions opened by one or more investors automatically, specifically within a social trading network. By doing this, the trader performing the copying has their account linked to the original investor’s, so that actions (such as opening or closing a position) are executed across both.
In most cases, the copying trader has the flexibility to stop trades which have been copied and manage them on their own. This means that they can bring copy-based relationships they have initiated to an end, as they see fit. Original investors, whose trades are being copied, typically earn fees (through month-by-month subscriptions) as compensation.
There are various platforms available for cryptocurrency copy trading, and they utilize a wide range of logic to facilitate trade copying. A number of copy trading platforms allow traders to put Stop Loss orders on a whole copy relationship, so that they can exert control over their potential risk.
It’s certainly complicated for beginners, but crypto copy trading is a popular choice, and there’s an active community to tap into for hands-on insights.
Copy trading vs mirror trading
Copy trading is often compared to mirror trading. This is a strategy common in the Forex market, enabling investors to copy trades initiated by successful traders — any strategies which work well for one or more users can be copied by another to turn a potential profit.
Originally, mirror trading was open to institutional customers only, before being made available to retail investors too. The automated setup helps to stop investors from emotion-based trading choices, which can lead to negative decisions.
Mirror trading has inspired a number of other strategies since it was launched in the 2010s, most notably copy trading and, similarly, social trading.
When conducting mirror trading, traders leverage a ForeEx broker’s trading platform to analyze historical data and learn about specific strategies in detail. A trader can choose an algorithm-based strategy from a list of options, considering key aspects such as risk tolerance, preferred cryptocurrencies, goals, and more.
As an example, we can imagine a trader with a low risk tolerance. They decide to mirror a trading strategy with a maximum drawdown at a low level. As strategy developers conduct trades, they become duplicated in the mirror trader’s own account. Automated software keeps this process running for as long as required, to maintain consistent results over time.
Copy Trading vs Social Trading
Social trading is a method of investing which empowers traders with the capability to monitor fellow traders’ activities and to follow their strategies, through mirror and copy trading. As a result, even the most inexperienced traders can dive into crypto trading without doing extensive research.
Basically, social trading is an effective, user-friendly method of assessing data based on traders’ individual behavior patterns. Gathering this information allows traders to compare different strategies and methods before replicating them for their own benefit.
Before social trading was launched, traders were depending on technical or fundamental analysis for deciding their own investment choices. But when it started to gain traction, traders realized they could leverage social indicators from others’ data feeds, for a simpler process. In effect, social trading platforms could be considered similar to social channels that people use every day.
With social trading, users can conduct online trades with extra assistance, which is why some feel it helps novices advance their expertise faster than traditional methods do. They can interact and watch how other, more experienced crypto traders behave, before duplicating any trades which catch their eye.
Furthermore, social trading helps beginners to learn why a trader made a particular choice, and build a strong personal knowledge bank over time.
But it’s critical to remember that social trading isn’t designed as a speculation tool: speculation often attracts negative attention, so it’s best to avoid this whenever possible.
Understanding crypto copy trading’s increasing popularity
There are two types of traders the world over.
First, there are those who put in the time to conduct their own research, gather information on effective strategies, monitor trends, and build their skills organically.
But the second type are focused on generating money while investing little of their own effort and time.
The latter are especially attracted to copy and mirror trading, but traders from both types use these methods regardless. One of the main reasons is that they place a lot of faith in these processes, and know that they’re not trading on their own, which can help them to feel more comfortable or confident.
As a result, crypto copy trading isn’t just for people with little to no experience in cryptocurrency markets. Many seasoned traders use it for researching the market, to save time and focus on other important tasks.
How does copy trading work?
Copy trading is less dependent on information provided by fellow traders, and more so on their behavior. As we’ve already established, this system allows one trader to copy the actions of others. Users have to copy a trader with a chosen platform’s automated system for the process to count as ‘official’ copy trading.
When a trader conducts copy trading, a part of their portfolio is linked to that of another user’s, and all of their open trades may be copied from account to account. All actions taken in the future will be copied, too.
The cryptocurrency copy trader can decide how much they want to invest in the trader they’re copying from, though often, this is unable to be higher than 20 percent of the copy trader’s portfolio.
Sums used in trades are represented as a percentage of a trader’s portfolio. For example, a trader may have a balance of $2000 in their account, and as they have no open trades, they intend to copy a successful trader.
It’s important that they don’t invest a large amount if they’re a novice, so will be best using just 10 percent ($200). They decide to go with the copied trade, and the original trader has just one open trade, which is copied into the copy trader’s own account.
As the $200 sum is a percentage of the original trader’s portfolio, it will be 10 percent if their portfolio is $2000. Should they conduct a trade for $200, the copy trader will do the same, but if the trade is likely to cost more, systems can be configured to manage this as the copy trader sees fit automatically.
Profit Sharing - another face of Copy Trading
Some companies including Zignaly offer really interesting method called profit sharing. The profit sharing differs from regular copy trading - you pay a success fee upon reaching new profitability highs on certain positions.
The trader and those who copy him become one and it insures the flawless execution of the trading strategy from A to Z as well as 100% identical results
Depositing and withdrawing money in copy trading
Any copy traders who feel impressed by the way in which the original trader is behaving can increase their investment easily. This allows them to put up more money when trades are copied into their account, and can boost profits over time.
However, this process introduces more risks, too, potentially leading to greater losses. This is why it’s so important to build a diverse portfolio rather than focusing investments on one trader only.
Different levels of copy trading control
When copy trading, you have a range of control options at your disposal based on your choice of platform. Certain ones incorporate a fixed system, so once you start following a trader who appeals to you, the only other thing you can do is to end your copy relationship.
However, some platforms offer a more flexible experience and make it easy to control your money manually. If there’s a trade which doesn’t appeal to you coming up, you can close it yourself with ease.
Cryptocurrency copy trading results with Zignaly
Advantages of Copy Trading
Helpful for beginners – copying the trades of someone who is better than you can be really convenient. They do the hard part – all the research and weighing up the odds, and you just do what they do. If you have a busy life and don’t have either the time or the spare mental capacity to fully commit to trading, then copy trading can be an attractive option.
Demo copy accounts – not everyone offers these but if you find someone who does you’ll welcome the opportunity to try out their platform. It’s a great way to dip your toe in the water because you don’t pay anything for a demo account, you’re not risking any of your capital while you learn, and you often get to practice with some useful research tools.
Officially recognized – key regulatory frameworks like CySEC, ESMA, MiFID, and the FCA consider copy trading to be legitimate and have given it their seal of approval. But, the caveat here is that you’ll still need to make sure that you only trust your money to a reputable licensed broker.
Portfolio diversification – it’s easy to only ever go with what you know, but with copy trading, you gain the chance of being exposed to tactics that you might not have considered before.
Disadvantages of Copy Trading
Risk – even the best traders can’t win every single time, which means that sooner or later you’re going to be following someone into oblivion when they perform a losing trade.
Control – there is none because you’re effectively handing your portfolio to a stranger.
Costs – it varies, but some brokers charge fees, which could come in the form of a commission on each lot of traded volume, and there’s a good chance you will have to stump for a minimum deposit amount to invest in a particular trader too. You can expect to pay something like $200 for this.
Not generally available in the USA – the Dodd-Frank Act restricts lenders in the US to protect customers from abuse, which precludes copy trading.