As the crypto space is growing at a fast pace all around the world, there is still a need to have a sound and detailed knowledge of the technicalities involved in crypto and its fundamental basis.
A number of traders globally are still struggling to learn a number of skills in order to develop a proper winning strategy in the crypto ecosystem. Moreover, to trade successfully there is a long-awaited list the traders have to work on.
Keeping in mind the ups and downs of the crypto market, the developers have found out a number of strategies and techniques to help the beginners. These tools and techniques help the traders to look for the potential of crypto industry making crypto trade a simpler process for them by following the experts and professionals.
Crypto copy trading is such a technique that helps the traders to follow the steps of the professionals and experts and learn to deal with crypto market. Here is a detailed guide article that will help the readers to learn about crypto copy trading and the pros and cons attached to it.
What is Cryptocurrency Copy Trading?
It is a strategy that is applied in crypto trading where the beginners are allowed to imitate the trading methods and techniques of the experienced traders. Copy trading in crypto is an automated technique specifically designed for new traders.
It eliminates the requirement of gaining professional training or spending a lot of time in doing research regarding crypto to ensure earning profit at the end. It helps the traders in buying and selling crypto assets without getting too much involved in the details.
The new traders have just to find out the trading skill that have been used by the experts in the past and implement them in their trading procedures to earn profit.
It will save the time of the beginners as they do not have to invest their energy in learning the complicated methods required for trading or analyzing the trends in the market. It can easily be done by the software itself as it just simply copies the techniques used by the expert traders in the past.
This can be understood by the example that if the copy trading software is imitating a trader who invested 120 dollars on a certain type of cryptocurrency in the past, the software will also spend 120 dollars on the same currency without giving a second thought.
By using this software, the new traders can learn new skills that would help them in making smart decisions in the future in addition to using the past experiences of the professional traders.
Moreover, the social media platforms such as Robinhood or Facebook can be used too by joining the trading groups over there to get any help in the future.
Keeping in mind the volatility of the crypto market, one can get advice regarding the market conditions from these groups. The market experts refer this phenomenon as crypto social trading.
The experts and professionals help the new traders over these platforms about the assets that should buy or sell according to the market situation. However, one should be aware of the fact that using the copy trading method does not ensure total success.
It is due to the reason that the new traders may not implement the strategy in the right manner as the process is not automatic and operated by a software.
Working of Crypto Copy Trading
To carry out crypto copy trading successfully, one should always opt for a professional copy trader and a good software. The complete procedure of copy trading is mentioned in detail to help the new traders implement it easily.
- Selecting the Correct Trader
Choosing the correct trader is the very first and important step before initiating the crypto copy trading. The trader that one chooses to follow for copy trading decides the efficiency level of the trade.
Therefore, it is considered important that the new traders should look for the experts in the market carefully and analyze their trading skills in detail.
There are a number of market parameters that should be looked for before deciding the trader to follow. These parameters may include the number of followers, the risk level they can sustain, the amount of funds that could be managed by them and most importantly the profitability of the trades they carried out in the past.
It is totally dependent on one’s own choices that what sets of parameters he chooses for selecting a trader. However, before making a decision regarding crypto copy trading, it is very important for the new traders to determine the characteristics that are important for them.
It is an important factor to be considered here that how will the new traders learn about the performance of the professionals in the past. The professional traders make all their past information and trading strategies accessible to the fellow traders over the copy trading software so that they can choose to follow them looking upon their profile.
The trading characteristics of the traders can then be analyzed by the beginners, and they can then choose accordingly for the traits they desire in carrying out trade.
The traders who allow the fellows to copy their strategies and policies are then paid a minimal fee. About 7% of the profit that is earned through copy trading, is paid to the experts who are being copied.
Therefore, everyone gets benefited by using this method, the traders who are being copied and the traders who are copying them.
- Setting Up the Software
The second step is to look for an appropriate software. This step is as important as to choose the correct trader for copy trading. Once an appropriate software is found by the trader, then it has to be set up properly. This step might take some time initially but once it is completed, the remaining procedure can be then carried out smoothly.
The percentage or the ratio that the trader wants to imitate from the lead trader should be set on the software. Moreover, in case the trader finds some better expert to be copied during the procedure, he can conveniently shift to the new one even when the software has been set up.
In addition to that, the software can be used to stop any trade process if it is not providing the desired results. In this way, the closing position can be decided by the trader himself without following the lead trader. Moreover, more than one lead traders can be chosen by the beginners to enhance their portfolio and to diversify their trading profile.
But it is important that the amount of charges that will be paid to all the traders should be determined beforehand, in order to avoid any confusion and conflict in the future.
- Keeping the Vigil
The trading strategies of the experts in the past are automatically copied by the software as they are innately designed to do so. However, the traders using the software have complete hold over the software and can control the trading process in their own way.
It is up to the traders that they take decisions in trading by their own analyzing the footsteps of professionals in the past or leave it completely upon the copy trading software to carry out the trade on their behalf. Moreover, the trading decisions also depend on the amount that the trader has to invest initially to start the trade process.
Can Crypto Copy Trading Be Considered Legal?
Though it may be thought that the concept of crypto copy trading is still evolving in the market, but this is not the case. This concept exists in the crypto space a long time ago. It is important to mention that a number of reputable and well-known regulatory bodies recognize the crypto copy trading method.
The market regulatory body and supervisor of European Union named as European Securities and Markets Authority (ESMA) have marked it legal. In addition to that, a financial regulatory body in the United Kingdom named as Financial Conduct Authority (FCA) has also recognized copy trading.
Moreover, it is important to look that whether if the dealer that one is planning to copy is market legal by the regulatory authority or not. it depends on the country in which the trader is residing in and varies for every geographical region.
Copy trading can be considered as a lawful means of trading if the service chosen by the trader is a regulated one as a number of laws and regulations have been passed related to copy trading till date.
Pros of Crypto Copy Trading
There are a number of benefits of crypto copy trading that could help the beginners in the start.
- Finding Traders
The new traders can find out the profitable trader by going through the copy trading platform. A number of platforms offer a number of parameters such as reward-to-risk ratio, average size of winning and losing trades, profit and loss percentage etc. that could help the trader to choose who to follow.
- Automated Trading
By following the experienced traders in the market, beginners can automate the trading process. They just need to invest energy and time in looking for a correct trader to imitate.
- No Involvement of Emotions
As the crypto copy trading is carried out by the software with least human involvement, it also decreases the possibility of decision making derived by human emotions.
Cons of Crypto Copy Trading
- Inability to Control Risk
The biggest flaw that is attached with crypto copy trading is the inability to eliminate the possibility of risk despite being an automated process. The final results of the trading process totally depend on the trader you choose to follow, the platform you choose and the software that is set up in the beginning.
What are the Risks Involved in Crypto Copy Trading?
The profit that could be earned through crypto copy trading largely depends on the expert trader that one chooses and the platform he wants to trade on. Any wrong decision during the trade phenomenon can result in a big loss.
Therefore, it is always advised to the traders to carefully think before actually investing in trading. Some of the major risks that could prove harmful in the future for the beginners are mentioned below.
- Choosing a Platform
The beginners in the crypto space do not have much knowledge about the market. Moreover, with the increasing hype of crypto around the globe, the number of copy trading platforms are also increasing in number.
Therefore, a trader might find it difficult to choose from the multiple number of similar platforms that could prove helpful in trading.
- Choosing a Lead Trader
A trader might lose a large amount, may be a hundred or thousands of dollars because he failed to make the correct decision at the correct time. Therefore, the copy traders should carry out detailed analysis about the features provided by the platform and read the reviews about the lead traders before making a final decision of choosing one.
As the social media has provided the access to everyone in every corner of the world, it might become difficult for the traders to choose a single trader.
The task becomes more challenging as the amount of information about the things starts compiling. It becomes difficult to differentiate between the authentic and false information. One cannot tell which resource of data is reliable and which one is unreliable.
Therefore, it is important to not just go through the profile of the trader rather perform a thorough research about his trading profile.
- Choosing a Software
Choosing a wrong software may also provide a hard time to the copy traders. No matter how authentic and reliable one chooses, it may start performing wrong functions due to any abnormality at any time. This may result in the provision of certain outcomes that are not needed by the trader.
Therefore, it is suggested to the traders that they should personally keep an eye on the trade activity instead of completely relying on the software. In case, the software keeps on making wrong decision and the loss in trade becomes higher and higher, the trader can decide the exit position of the trade himself and stop any further damage.
Carrying out a successful trade is not an easy task at all. It requires the traders to look for each and every aspect of the market to avoid any kind of mishappening in the future.
In order to determine the correct selling and buying conditions of cryptocurrency, the traders have to look upon all kinds of scenarios in the market, keep them updated about all the advance developments in the market and invest a lot of time in studying and analyzing the trade charts.
However, when one chooses the option of copy trading, he gets the access to imitate the strategies of a trader who has already made all this effort in the past. He just gets the permission to copy his experience without knowing all the work that happened in the background that made him make that decision.
Future Aspects of Crypto Copy Trading
Before investing in crypto copy trading, it is important to sort out all the possible aspects of trading. As it is already mentioned that a new traders gets benefits from the past experiences of a trader in crypto copy trading.
This helps in decreasing the need of time and effort that is usually required to become a successful trader in the market and to develop expertise level skills in trading.
Crypto copy trading might prove a lot beneficial in case the traders make correct decision initially about choosing a correct lead trader and a correct platform.
Buying and selling cryptocurrency might leave the new traders confused at the start. However, with time they come to know about the struggle required to become a successful trader in the market, looking over the efforts of experienced traders.
The new traders then become used to the market conditions and requirements and start responding to them immediately. They also learn to study and analyze the market charts and take correct decisions in market fluctuations.
In case one aspires to become an expertise in crypto investment, learning proper crypto trade is the first step. New traders in the market can learn by following the footsteps of the lead traders and looking upon the background effort required for successful trading.
This will help in polishing their trading skills and soon they themselves will become experts in crypto trading.
Crypto copy trading can prove a lot helpful for the new traders in the market by providing them a pathway they can follow easily. The new traders can automate the trading process and learn to analyze the market conditions in a better way by imitating the expert traders in the market.
However, it depends on the trader that how much time he invests in looking for a proper platform and a trader to follow to increase his chances of success in the market.