Cryptocurrency trading is a complex skill that requires extensive knowledge of fundamental and technical analysis and the cryptocurrency ecosystem as a whole. Since most traders lack the ability to develop a winning trading strategy, they struggle to learn a multitude of skills necessary to be a successful trader (one who knows how to swim through the rough tides of the waters).
So amateur traders have no hope? Are they left to fend for themselves, speculating on prices and taking advantage of the ups and downs of the cryptocurrency industry? Fortunately, there are tools that help these traders explore the potential of the cryptocurrency industry, simplifying overly complex cryptocurrency trading by following expert traders.
This article looks at what cryptocurrency copy trading is, how it works, its legitimacy, and its limitations. He also talks about how a holistic approach to copy trading can play a key role in the evolution of traders.
What is cryptocurrency copy trading?
Cryptocurrency copy trading is an automated strategy that allows you to copy the trading methods of an experienced trader. This allows you to buy and sell crypto assets for profit without spending a lot of time on research or gaining knowledge of cryptocurrency trading.
Basically, cryptocurrency copy trading is all about identifying expert traders and literally re-executing their moves. A trader does not have to spend time choosing market trends or learning complex trading methods. Rather, the software simply mimics what the expert trader is doing.
For example, if the trader that the copy trading software follows spends $100 to buy coin A, the software will also spend $100 in the same cryptocurrency. This tool not only helps amateur traders to use the experience of other traders, but also helps them learn how to make smart investment decisions.
Alternatively, one can join trading groups on Facebook or Robinhood for advice on the correct cryptocurrency trading strategy, at their own risk, as nothing is certain in the cryptocurrency industry, given the volatility of the market. This practice is called social cryptocurrency trading. On these platforms, experienced traders suggest which crypto assets they should buy or sell. However, the process is manual and there are chances that traders will not apply it without errors, thus lowering the chance of success.
How Cryptocurrency Copy Trading Works
Choosing an expert trader and software are two essential elements for successful copy trading. Here’s how to get started with cryptocurrency copy trading:
Select the right trader
When deciding to copy cryptocurrency trading, the first step is to identify the right trader. The efficiency of copy trading is invariably tied to the skill level of the trader one is following. It is necessary to carefully research the available traders and analyze their skill levels against certain parameters such as the profitability of the operations, the total amount of funds they manage, the level of risk and the number of followers, among others.
Which set of parameters one ultimately chooses depends on one’s own preferences. Amateur cryptocurrency investors need to carefully determine what is important to them in order to make a decision regarding cryptocurrency trading strategy.
One might wonder how you will be able to get information on the performance of various traders. It is to find all the necessary information in typical copy trading software, as traders willingly agree to give members access to their trading moves. One can examine the history of several leading traders on the dashboard and select the one that fits the parameters of their choice.
Lead traders themselves receive a small commission for allowing their trades to be copied. The commission is usually around 7% of the profit obtained. In this way, the system works to the benefit of both expert traders and those who follow them.
configure the software
Selecting the right software is just as important as choosing the right cryptocurrency trader. Once the trader chooses the software, the next step is to set it up. Although it may take some time, it is a smooth ride afterwards as the process is automated. The software can be configured to invest the same amount or the same percentage as the trader it is emulating.
Even after setting up the software, a trader can switch to another trader at any time they want. They can pause any trade that the software makes or they can decide on their own to close a position without waiting for action from the main trader.
Cryptocurrency investors can also choose more than one top trader to diversify their portfolio. However, you have to determine the portion of the funds you want to allocate to each lead manager.
keep watch
The algorithms of the trading platforms are designed to automatically copy the trades of the top investors. However, one is in full control of the operations and can override the software at any time. Traders can leave it entirely up to the software or see their peers’ portfolio selection themselves and take trading actions based on their investment objectives.
Is it legal to copy cryptocurrency trades?
Copy trading gives the impression of being a pioneering term; however, it has been around for a long time. Regulatory bodies such as the Financial Conduct Authority (FCA), a UK financial regulator, and the European Securities and Markets Authority (ESMA), the European Union’s regulator and supervisor of financial markets, have recognized copy trading. .
Understanding the legal status of copy trading in the country in which one resides before investing is just as important as establishing that the operator is regulated. Many regulations have been put in place for copy trading, so copy trading can be considered a legitimate trading method if you use an authorized service.
Cryptocurrency Copy Trading Risks
To a large extent, the efficiency of the cryptocurrency trading process depends on the choice of platform and the experience of the main trader. One wrong move could ruin the entire exercise. It is important to make each decision after due diligence.
There are so many cryptocurrency trading platforms out there that choosing the right one could be quite taxing for an amateur trader who has little knowledge of the domain. A trader who does not make a well thought out decision could lose hundreds or thousands of dollars. Experienced copy traders compare the features of various platforms and review their opinions before making a decision.
When looking for a trader, choosing one in the age of social media is challenging. An avalanche of information from all kinds of sources, reliable and unreliable, makes the task more difficult. It is important to do proper research when selecting a trader rather than just reviewing a person’s profile.
All computer programs, no matter how well developed they may be, can fail at any time and start offering unexpected results. A trader needs to keep monitoring the cryptocurrency trading process and get out of the position if he feels that he is making continuous losses.
Trading is a full-time job that requires cryptocurrency investors to spend entire days studying the charts, updating themselves on the latest developments, and testing various scenarios to determine when to buy and sell cryptocurrencies. While copy trading allows a trader to see the actions of the top traders, they don’t get to see the behind-the-scenes work that led them to make those moves.
Holistic and long-term view of cryptocurrency copy trading
It is important to consider all aspects of cryptocurrency copy trading before investing. At its core, the cryptocurrency copy trading process is about leveraging the experience of a previously successful trader, virtually nullifying the time one would normally need to develop trading skills of the same level.
If one is able to choose a worthy trading platform and the right trader to copy, it could become a profitable trading approach in the long run. For novice traders, learning how to buy and sell cryptocurrencies can be confusing. By copying the trade, they can see the action of an experienced trader in real time, which helps them understand the nuances. They are able to learn, to read trading charts, and to gain the ability to respond to changing market conditions.
Copy trading can be the first step to becoming an expert cryptocurrency investor. Regularly following the actions of leading traders, backed by behind-the-scenes learning, can help amateur traders hone their cryptocurrency investing skills and evolve into expert traders.