If you are interested in cryptocurrency trading, you have probably heard of copy trading. With thousands of cryptocurrencies available on the crypto market and more and more being created every day, copy trading seems to be a great way to diversify your portfolio, especially if you are a newbie.
It is not easy to decide which are the best cryptos to trade and at what moment.
As crypto trading is a hard process, requiring research and knowledge, copy trading can be a perfect choice.
What is copy trading?
As its name suggests, copy trading is the process of copying trades of other traders. Simply said, this means executing such trades in your account. Actually, this appears to be a much cheaper alternative to professional asset management.
Crypto copy trading also helps reduce the learning curve in the market.
As we already said, it is a great opportunity for newbies as it lowers the possibility of over leveraging their accounts by achieving higher profits. And all this, without the need of doing a huge market research.
Of course, it is not only beginners who practice copy trading. There are some experienced traders who benefit from copy trading, as they don’t have the time or the desire to analyze and monitor the cryptocurrency market.
How does it work?
As we already explained, copy trading means copying other traders trading strategy. Of course, how it works depends on the used platform, although the principle is the same - it is an external money management.
First thing to do is to find the right platform and the traders you want to copy from. Those have to be traders who match your objectives. You can also choose multiple traders, with different strategies, to copy from.
After choosing the trader or traders you are copying from, you need to decide how much money you will invest. As we always like to say, you shouldn’t invest more than you are willing to lose. Do not forget that!
Well, if you are copying multiple traders' strategies, you can split your investment among them or allocate your funds, depending on the profitability and risk management of the traders you have chosen.
The important thing to say here is that you can choose to trade manually or automatically. You can also set the degree of automation at some platforms. Regardless of the degree of automation, you can monitor the open positions. Trustable platforms for copy trading are transparent and give their user a range of data.
How to find a trader to copy from?
Although copy trading sounds easy, it is almost as hard to find the right trader to copy from, as it is to find the right crypto to invest in. Of course, there are some factors to consider that will help you narrow down your choices:
Experience
On the social trading platforms you can find a profile of the traders, There you can find important information about their profits and losses, the risk level, the return on investment, etc. This is a good place to start on, finding some traders who match your objectives and ranking them based on these factors.
Strategy
As we said, there are thousands of cryptocurrencies to choose from. So, to find the right trader, you should have a look at their portfolio and investment strategies and see if they are adequately diversified.
Communication and followers
It is always a good sign if the traders have a good number of followers and interact with them often enough.
Pros and Cons of copy trading
Pros
As we already said, it is a good way to start, since you will earn while you learn. Copy trading is a good way to earn some passive income, without investing so much time and effort.
Copy trading makes it easier to control losses, as you can just stop following the trades of the losing trader. It is also easier to diversify your portfolio, taking the best out of the traders' expertise.
Cons
Copy trading, as any other trading, is a risky game. Even good traders lose sometimes. So, you have to be prepared to lose some money at some point.
Furthermore, choosing the right traders is also a hard task, so you still need to do a good research, and still, be ready to lose.
Last but not least, copy trading does not come for free. Successful traders charge fees to follow them, so you have to be prepared for that too.
Conclusion
Crypto copy trading has its advantages and bottom lines. However, once you get the hang of it, you will see that you can make some great profit from the expertise of professional traders.
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