Ever since Bitcoin first went big in 2017 by surpassing $1000 in value, the interest in this new asset and other cryptocurrencies has been growing at a rapid rate. But there is one problem, which is the influx of inexperienced people who saw how early investors made millions, and now they are trying to strike gold. As more and more people are joining this growing market, the number of those who have no idea what they are doing is rising each day, this has left many asking what to do.
This should not be surprising as cryptocurrencies and blockchain in general, are complicated subjects. For example, with stocks it is pretty easy to understand, you own this stock, you own a portion of this company and the price of this stock depends on the success of the company. But crypto and blockchain are digital products and they are not backed by any hard assets. This makes navigating and understanding this market very complicated for newcomers when all they know is that cryptocurrencies are an easy way to make money. So for these people, who don’t know effective ways of trading crypto, a lot of platforms started to offer copy trading. But what is it exactly?
What is Copy Trading?
Copy Trading is an automated trading strategy. But instead of using trading bots where you indicate a trading strategy and the bot trades using this strategy automatically, copy trading is a more simple scheme. Copy trading is used especially by newcomers and those that don’t have time to keep an eye on the markets.
As the name suggests, when you are copy trading you are making trades based on someone else’s trading activity. When you visit a platform that supports crypto copy trading, you will be given a list of traders who are offering their services. Here you will be able to see how many people are following this trader, what capital they are trading with, how much profit they have made, and find a lot of other useful information. When you find a trader that you like, you simply need to start following them, and based on the platform you are using, you then connect it with one of the supported crypto exchanges or any other accepted trading platforms, and every time this trader makes a trade, your account will automatically execute the same trade.
Should we use Copy Trading?
Now, looking at this from one point of view might leave a negative impression. When copy trading, your success depends on the success of someone else, and if they make unprofitable trades, you will also be losing money. But this does not mean that we should not use copy trading at all. When you are an inexperienced trader, the best course of action is to learn how trading works and trade yourself. But if we consider that most people who join the crypto market are not full-time traders and have regular jobs, they might not have enough free time to dedicate to learning this complicated market. For these people, copy trading is a very good way to dip their toes into the trading world. The important thing here is to choose a good trader to follow, and you should acknowledge that they are also trading with their own money, so there won’t be someone making bad trades on purpose. When you choose the right trader, then you will need to keep an eye on this person’s trading activity, or simply on your trading activity as it will be the same. By keeping an eye on these trades, you will know how things are going, and if you see that you are losing money, you can simply stop following this trader. There are some copy trading platforms that even let you set the number of losses you can tolerate and once the losses exceed that amount, you will automatically stop following this trader.
Other alternatives
If you are someone that does not have trading experience or simply doesn’t have time to keep an eye on the market in order to make your trading successful, there are other alternative methods to copy trading that you can use.
Using automated trading bots is one of the best alternatives to copy trading. There are many different free and paid automated trading bots that you can use for your trading. These automated bots are programs to which you can indicate how to trade and with what amounts. After setting up your bot, you can simply watch as the bot does everything. There are also trading bots that come pre-programmed with different trading strategies, and you can simply choose the one you like the most. For example, one of the most popular automated trading bot providers, Bitsgap, has trading bots that can trade using GRID, DCA, and other strategies.
FAQs on Crypto Copy Trading
Is crypto copy trading profitable?
Crypto copy trading can most certainly be profitable. When you are using copy trading the main determining factor for profitability is if the trader you are copying from is profitable or not. When you follow a trader there is a possibility that he might fail at a few trades resulting in losses. But there are also possibilities that he can go on a very long streak of successful trades and make some great profits. So the answer to this question is as follows: If you choose the right trader, copy trading is most certainly a profitable trading strategy.
How do I start copy trading?
In order to start copy trading, you first need to choose the platform on which you will be looking for traders to copy. Once you select a platform, then you will need to look through different traders and compare them. For comparison, look at what strategies they are trading with, how much their drawdown is, how much trading capital they are using, how much profit they have made, and other similar information. Then select the trader you like the most and start following them. If the platform you are using is also an exchange or broker, you will be trading on the same platform. But there are also platforms just for finding traders to copy, and there you will need to connect them to your trading platform in order to automate your trading.