Crypto Copy Trading – a Valid Opportunity to Consider?!

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Copy trading - you've probably heard of it and might even be wondering what all the fuss is about. We'll break it down for you, and, in the end, you should be able to tell if it's a valid opportunity for you to consider. As of this writing, CoinMarketCap lists 14,304 cryptocurrencies, which for novice traders presents plenty of options to diversify one's portfolio.

However, this much choice comes with a downside – choice paralysis. How does one choose the best crypto to trade? How do you conduct proper due diligence in a market this vast?

This is where copy trading comes in.

What is Copy Trading?

Copy trading, as its name suggests, is when you copy trades that other traders make. In other words, you execute similar trades in your account, which is arguably a cheaper alternative to professional asset management. At its core, crypto copy trading helps reduce the learning curve in the market.

For beginner traders, copy trading lowers the probability of overleveraging their accounts by achieving the highest possible profits, all without having to do complex market research. But it isn't just for novice traders; experienced traders who do not have the time to analyze and monitor the market stand to benefit from copy trading, too.

How Does Copy Trading Work?

Copy trading means mimicking another trader's strategy. While the exact mechanics of how it works differ depending on the platform, the principle is the same: it is nothing more than external money management.

The first step is to identify the best platform and traders from whom to copy. Naturally, these are traders who best match your trading objectives. Note that you can select multiple traders with different trading strategies to copy. (We'll discuss how to identify the best traders to copy later in this article.)

The next step is to decide how much you intend to invest. Don’t put all of your eggs in one basket. If you opted to copy multiple traders, then you can split your investment equally among them. You can also allocate your funds depending on the traders' profitability or risk management.

Note that you can select whether to automate your trading or to trade manually. The degree of this automation can also be set by most trading platforms. Trades can be fully automated, semi-automated, or completely manual. For fully automated copy trading, specialized crypto trading bots are an indispensable tool.

Regardless of the degree of automation, you can monitor all the open positions in real-time. Reputable platforms for copy trading are also transparent concerning their signal providers and often give their users a range of data. The top traders also disclose their decision-making process and answer questions from the community.

How to Identify the Best Trader to Copy from

Finding the right crypto trader to copy is almost as cumbersome as finding the best altcoin to invest in. Here are some criteria to narrow down your selection:

Experience: All social trading platforms have comprehensive profiles for every trader. They publish their detailed profit and loss records, the amount of funds they manage, the risk level, long-term return on investment. You can rank multiple traders based on these factors and identify the best ones, specifically the ones who are consistent over the long term.
Investment strategy: As we mentioned, there are thousands of cryptocurrencies from which to choose, which means that you should choose traders whose portfolios and investment strategies are adequately diversified. Analyze the structure of their crypto portfolio - diversification reduces the risk of losses.
Communication: Check to see if they frequently interact with their followers. Communication is just as important as profitability.
The number of followers: Typically, the most popular traders are often profitable ones.

The Benefits and Risks of Copy Trading

Before deciding if crypto copy trading is worthwhile for you, let's first analyze some pros and cons.

The Benefits

It's convenient for beginner traders, since they earn while learning. If you're just starting out in the crypto market, copy trading is the perfect way to understand how the market works and avoid the pitfalls associated with a steep learning curve.
It offers the best way to earn passive income. With full automation, copy trading frees up traders' time to focus on other activities, while giving them the peace of mind that professionals are handling their trading activities. It's also suitable for those who don't have the time to trade, whether they’re beginner or experienced traders who simply don't have the time to monitor the markets continuously in order to identify possible entries and exits.
You can easily control your losses. If the results don't meet your expectations, it's easy to stop copying the trades of the losing trader and focus on more profitable ones.
It's easy to diversify. With thousands of cryptocurrencies available, copy trading allows you to benefit from the technical expertise of experienced traders with advanced risk management strategies.

The Risks

Even professional traders lose sometimes. No one has a 100% profitability record in trading, which means that you will certainly lose money at some point. If you copy trades from multiple traders, this probability increases, too.
Choosing the best traders to copy from is a gruelling task, which makes finding the most reliable trader difficult. Even then, it may be hard to tell whether their profitability is simply from their expertise or if they're going through a hot streak.
Copy trading is not free. Most successful traders charge fees for you to follow them.

The Bottom Line

Crypto copy trading is not complicated when you get the hang of it. Given the sheer size of the crypto market, copy trading allows you to benefit from the expertise of professional traders. You can follow their trades manually or automatically using crypto trading bots.

In the end, it is imperative that you fully understand how copy trading works, including the advantages and disadvantages involved, which we’ve outlined in this guide. Only then can you decide if it is a valid opportunity to consider.

This article does not necessarily reflect the opinios of the editors or the management of TokenPost.com

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