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 many skills needed to be a successful investor (who knows how to swim in steep water waves).
Do amateur traders have no hope then? Are they left to fend for themselves, speculate on prices and make huge strides in the steep ups and downs of the cryptocurrency industry? Fortunately, there are tools that help these traders explore the potential of the cryptocurrency industry, and simplify excessive cryptocurrency trading by following expert traders.
This article discusses what cryptocurrency copy trading is, how it works, its legality and its limitations. He also talks about how a holistic approach to copy trading can play a major role in the evolution of traders.
What is cryptocurrency copy trading?
Cryptocurrency copy trading is an automated strategy that allows the trading methods of an experienced trader to be copied. This enables an individual to buy and sell crypto assets to earn profits without devoting much time to research or gain proficiency in cryptocurrency trading.
Basically, crypto copy trading is all about identifying skilled traders and literally re-executing their moves. A trader does not have to spend time choosing market trends or learning complex trading methods. Instead, the software simulates what an expert trader does.
For example, if a trader with a copy trading program invests $100 to buy A coin, the software will also spend $100 on the same cryptocurrency. The tool not only helps amateur traders to use the experience of other traders but also helps them learn the skill of making smart investment decisions.
Alternatively, one can join trading groups on Facebook or Robinhood to get advice on the right cryptocurrency trading strategy at their own risk, as nothing is certain in the crypto industry, given the volatility of the market. This practice is called social trading of cryptocurrencies. On these platforms, experienced traders suggest which crypto assets to buy or sell. However, the process is manual and there are chances that traders will fail to implement it without errors, thus reducing the likelihood of success.
How crypto copy trading works
Choosing a skilled copy trader and software are two key components to successful copy trading. Here is some light on how to get started in cryptocurrency copy trading:
Select the right merchant
When one decides to go for crypto copy trading, the first step is to select the right trader. The efficiency of copy trading is always related to the skill level of the trader. They need to carefully research the available traders and analyze their skill levels against certain parameters such as the profitability of trades, the total amount of money they manage, the level of risk and the number of followers, among others.
The set of parameters that one ultimately chooses depends on their own preferences. Amateur cryptocurrency investors need to carefully determine what is important to them in order to decide on their cryptocurrency trading strategy.
How does copy trading work?
One might wonder how they will be able to get insights into the performance of different traders. It is to find all the required information on the copy trading model software where traders willingly agree to give member traders access to their trading movements. One can examine the track record of several major traders on the dashboard and choose the one that matches the parameters of their choice.
A small fee is paid to the main traders themselves to allow their trades to be copied. The fee is usually around 7% of the profits made. Thus, the system works for the benefit of expert traders as well as those who follow them.
Set up the program
Choosing the right software is just as important as choosing the right cryptocurrency trader. Once the trader gets to zero on the software, the next step is to set it up. Although it may take some time, it is a fluent ride later as the process is done automatically. The software can usually be set up to invest the same amount or percentage as the simulated trader.
Even after setting up the software, the trader can switch to another trader at any time he wants. They can pause any trade made by the software or they can decide on their own to close a position without waiting for the main trader’s action.
Cryptocurrency investors can also choose more than one major trader to diversify their portfolio. However, one needs to decide what part of the funds he wants to allocate to each major manager.
Algorithms of trading platforms are designed to automatically copy the trading of major investors. However, one is in complete control of the trading and can overrule the program at any time. Traders can leave it entirely