The dream of every trader is to get good returns for their investments. But of course, this is not as easy as it sounds. The path to successful trading is even harder as a beginner. What if there was a way to trade just like the experts with little knowledge of trading? This is where copy trading comes in! In this guide, we will be diving into the wonders of copy trading, how it works and if it’s worth it.
What is copy trading?
As the name implies, copy trading is an approach that enables individuals to copy the trades of expert traders, algorithms, and strategies. Copy trading has been helpful, especially to entry-level traders. For beginners, technical analysis, price movements, and price predictions can seem quite puzzling. It’s alright if you don’t grasp the whole concept all at once. This is why you can employ copy trading as you figure it out.
Copy trading is also great for traders with little to no time to focus on the market. An individual may choose to automatically copy positions made by another trader so that they don’t have to monitor trades so often.
For the most part, your trades reflect the positions of your chosen strategy. That is not to say that you lose total control of trading decisions. You may still have power over risks, entry, and exit points.
Since you have some power in copy trading, you might as well use it to its maximum potential. You can best utilize copy trading by having some knowledge of the market, using indicators, among other means. This could help you determine entry and exit signals.
Copy trading types
Copy trading does not only refer to trading strategies, but also algorithms, a basket, and all trades of your chosen trader. This form of trading can be executed in two ways:
This method requires an individual to monitor and copy positions all by themselves. Unlike automated trading, programs are not used for trade executions. Hence, this method can be rather tedious.
We can see that automation and technology are considered the end-all and be-all in the contemporary world. That does not stop the fact that the human mind thrives in areas that even automated machines do not. In cases like this, manual trading has its advantages. For example, humans can perceive the news and how it might affect the market.
This method uses programs and algorithms to track, copy, and automatically execute trades. It is usually a feature in trading platforms. Automated copy trading involves running programs that will perform copy trading operations.
It is no doubt that this method sounds too good to be true. This hassle-free method of trading is easily admirable. But of course, there is usually a catch to most good things. Expert traders that get their positions copied often charge fees to enable people to use them. Some traders may also require you to share a part of your profit after successfully using their copied positions.
While the fees might cause you to rethink this method, it could all be worth it. A small token for your potential profits does not sound so bad. After all, the return of investments may be incredible compared to the initial deposit. Automated copy trading also enables a less tiring and stress-free means of making returns from trading.
Copy trading vs mirror trading
A common misconception is that copy and mirror trading are the same things. Although they share some similarities, that is far from the truth. We can see that copy trading involves copying entire strategies, trades, or algorithms. In mirror trading, there is more choice on strategies that should be copied. Mirror trading may also involve copying more than one trader.
In essence, mirror trading is a method of trading that allows individuals to copy selected strategies from different trading experts.
There is no doubt that the concept of mirror trading may sound a bit complex. This begs the question: How does mirror trading work? The platform used for mirror trading will require you to choose from different options like goals of investment, risk tolerance, and so on. Your choice of those options will determine the outcome at which your trades will go.
A major advantage mirror trading has over copy trading is its diversification of traders. Instead of copying just a specific trade, you have a plethora of expert traders, algorithms, and strategies to copy from. Although one should be careful because researching lots of expert traders may pose more difficulty than researching just one.
Copy trading vs social trading
Social trading is a form of trading operated by a group of traders that share information and resources to make trading decisions. Social trading goes beyond copying trading strategies and implementing them in yours. It is a more interactive and “social” method of trading.
Social trading was popularized with the emergence of social media. It created an avenue for different traders to share ideas, strategies, and insights. Since two heads are better than one, social trading has done an amazing job in educating traders and leading them to a good turn. Some platforms that hold a strong community of traders include Twitter, Twitch, and Discord among others.
A big plus goes to social trading for allowing traders to have more control in investment decisions. It also gives traders access to information. This is important as the market is controlled by the news. But be careful with this form of trading especially if you are driven by emotions. It could lead you to make impulsive decisions that you may regret later on. In addition, it requires a lot of time as it uses manual means of trading and a ton of research.
How to copy trade?
Now that you know the fundamentals, you can go ahead with the operations. Here are the steps on how to copy trade:
- Pick your preferred trader/algorithm: Successful outcomes do not just lie in picking the best strategy. Instead, it lies in picking the best one that aligns with your goals. Hence, it is important to conduct proper research on chosen traders, strategies, or algorithms based on your investment goals.
- Select investment amount: You will be required to invest a particular amount for copying portfolios, traders, or algorithms. Most platforms do not allow individuals to invest more than 20% of their portfolio. This helps to promote portfolio diversification and reduce risks.
- Payment of fees: Subscription-based plans are sometimes offered. This is when users pay a fee periodically for copying positions. Alternatively, you might pay by getting a cut taken out of your profit.
Why copy trading is becoming so popular?
In 2005, some traders came together to develop an automated replication system for their audience. From this system, copy trading was born. Little did they know that this creation would revolutionize trading for beginners and experts alike.
Copy trading stemmed from algorithmic trading. This is an automated trading system where a program uses a set of criteria to determine trades, entry, and exit points. For this reason, we can see that copy trading does not only copy traders but is also widely used in copying algorithms. The advancement of copying successful algorithms has also made it ever-growing.
Copy trading has been speedily popularized in the Forex and crypto space. Its growth can also be attributed to available data, the openness of APIs, and transparency.
Every day, there is a consistent rise in its use due to profitable results. This has only increased its relevance as it continues to serve people with improved algorithms and successful trades.
Can you make money in copy trading?
The trading scene has its fair share of risks and failures. This factor has questioned if you can make a good amount of money from it. Successful copy trading depends on various factors, especially the trades being copied as well as your personal plans and strategies.
While the vices you use for copy trading are important, you also need to put in the work to reap a positive outcome. Hence, you should treat copy trading like any other investment by mapping out a plan, and conducting your research. So, the answer is yes. You can make money with the right strategy.
Copy trading platforms
Using a good and trusted crypto trading platform is important for positive outcomes in your copy trading journey. You also need to ensure that your chosen platform offers copy trading. Here are some of the best trading platforms you can use:
- eToro: They are widely known for their CopyTrader system. The platform offers a unique form of trading that caters to millions of people.
- Mudrex: They present a fast and easy way of copying trades through their automated platform.
- Iconomi: A trading platform equipped with hundreds of strategies for traders.
- Vestinda: A library with ready-made crypto investment strategies, curated and validated by experts and constantly updated according to market conditions.
Copy trading offers a great means to make passive income, in the long term. But keep in mind that it is not all roses. You will have to put in work when it comes to picking the right strategies and algorithms. Thankfully, you can always use this article as a guide. On your quest to copy trading, ensure to follow the steps in this article to grant you a seamless journey.
Diana is the CTO of Vestinda.
She’s an engineer with extensive experience in the payments space, passionate about mathematics and artificial intelligence.