What is Crypto Copy Trading? How Does It Work?

Crypto copy trading refers to a unique application provided by many trading platforms that allows traders to replicate the trading patterns of other users. This is helpful to newbies who can gain profit by trading on the well-known path. Successful traders can share their portfolios and investment patterns to influence other traders and make a fan base for themselves. Copy trading helps new traders save time and money, as they do not have to invest in market analysis and research. 

How Does Crypto Copy Trading Work? 

There are two entities involved in crypto copy trading: successful traders who wish to publicize their trading patterns and new traders who would like to emulate the successful traders. 

For crypto copy trading to happen, the successful traders should first submit their accounts for verification. If their account meets the criteria for being accepted as eligible, they will be given official approval. On approval, their trades will be visible to the public. Their followers can now copy and use their trades.

The traders who want to copy trade can compare and contrast the trading patterns of different investors and follow the pattern that best matches their investment goals. After selecting a particular trader for copying, the trading pattern of that person and their portfolio will reflect on the follower’s account. Whatever transactions are made on the original account will automatically be done on the follower’s account too. 

How to Find a Suitable Crypto Trader for Copying?

If you are a novice in crypto trading and would like to copy-trade another investor, you must take absolute care of who you are trying to emulate. You should take note of the major metrics such as total return, risk-adjusted return, volatility, maximum drawdown, trading frequency, and length of trading history before selecting a crypto trader to copy their trade. However, you need to understand the trading description of the particular trader that you are planning to follow to get an idea about their goal and objectives, and whether they align with your trading objectives. 

You can also compare and contrast the trading patterns of multiple traders and incorporate the qualities of these different traders to customize your trading. You should keep monitoring the performance of the trader you have copied so that you can easily call off your copy trading activity if a worst-case scenario occurs. 

Advantages and Disadvantages of Crypto Copy Trading

Crypto copy trading is an activity with many advantages and disadvantages.

The major Advantages of Copy Trading are discussed here. 

1. Copy trading helps less experienced traders get significant gains by emulating other successful traders.
2. Copy trading offers a passive investment option for traders, eliminating the need for active research or market analysis.
3. For investors using copy trading, it is easy to diversify their investment portfolio by copying the trading patterns of different traders. 
4. Copy trading is an educational opportunity for new crypto investors. 
5. Copy trading is less stressful compared to active trading.

Crypto Copy Trading also has several disadvantages. 

1. Copy trading is susceptible to the inherent risks and volatility of the general cryptocurrency market. 
2. You may encounter losses if the trader you copied experiences any losses.
3. You have to pay fees or share a percentage of your profit with the trader you copied.
4. You do not have unlimited control over your activities, as the original trader controls the flow of the trading activities. 
5. Sudden shifts in market conditions can also impact copy trading

The Bottom Line 

Crypto copy trading is highly beneficial. However, the process has some risk elements, too. The general market volatility can affect the performance of your copy trading. The success or failure of your trading process is linked to the success or failure of the trader you have copied. Moreover, the risk management process is unfavorable to the copy trader because they cannot act promptly even in the face of an imminent risk. You need to take a balanced approach to navigate these risk elements.