New traders guide: What is copy trading and how does it work?

Trading is one of the most successful business ventures in the crypto industry. Users trade digital assets everyday both for profit and as a means to get the asset they need for other ventures. However, it requires skills in navigating exchanges, understanding of economics in different levels, and the mind to anticipate future trends. 

Copy trading is made easy thanks to multiple online services like eToro, Coinbase, and FTX. You just need to decide which asset to follow and choose whom to copy from. It’s a business strategy that gives you back your time and resources without sacrificing your potential for profit in the ever-growing crypto market. If you want to try copy trading, then here is what you need to know about it:

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What is crypto copy trading?

Crypto copy trading is the act of following somebody else’s strategy in buying and selling digital assets on the market. You can do this manually by placing or taking similar orders or automatically using bots. The ideal outcome is that you will get the same result as someone who is more experienced than you. 

How does copy trading work

Exchanges and brokerages simplify copy trading into three simple steps. First, choose a trading platform that showcases top investors’ portfolios and strategies. Second, deposit more funds than the budget of the trader you are copying from. 

Third, sync your account with your chosen investor. All you have to do next is wait for results while the trading platform automates your investment decisions as close to your chosen plan as possible. Some exchanges don’t offer this function as part of its services but you can supplement it by using extension bots.

What is a copy trading bot?

Copy trading uses bot or software to automate the process. This usually comes with a fee whether it’s available on the trading platform or from a third-party extension. Copy trading is a simple-enough task to entrust to artificial intelligence (AI). 

All it needs to do is buy and sell assets mitigated from the activities of the expert you choose. Some bots can perform more complex tasks like mitigating from multiple references for the safest or most profitable decisions possible. 

You can opt for a semi-automated experience where you check in once in a while to either change plans or make a few investments on your own. Just make sure your account has enough funds to follow the copied investor’s plans. You can also opt out of copy trading at any time just as easily as you started it by simply commanding the bot to stop.

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What is futures copy trading?

Futures trading, if you are not familiar, is setting a sort of promise to buy an asset from the market, the liquidation pool, or a seller at a predetermined price. The transaction proceeds when the agreed time comes. Some investors will have futures bet and you or your bot can include these when you copy from them. 

Traders trade crypto in futures to take advantage of its volatile nature. You are, essentially, reserving assets at a specified amount you wish to pay. It ensures that there is crypto waiting for you on a specific date. Investors trade in futures if they foresee a bearish trend in the market and futures allow them to buy crypto just in time with the dip. Regular purchases often take time and buyers often end up paying more than they intended because the market rose since they placed their order. 

What are examples of a copy trading platform?

Most trading websites and apps have copy trading tools for you to use. They often come in the form of a subscription or follow feature like in social media. The difference is, you need a deposit in your account and you don’t need to interact with anyone to benefit from their expertise. 

User-friendliness is often all you need to look for as a crypto copy trader. In this case, CoinSmart is one of the most popular options. It also comes with a simple yet effective 2FA system for security. You can also link it to your other wallets like cold storage and Gamdom account for making quick deposits. 

eToro is your top choice for brokerages because it has a wide range of users and a more interactive social element to explore. It also offers plenty of other features for automated investments besides copy trading to widen your options.

Crypto copy trading risks and benefits

Copy trading has several advantages for the copier, the copied, and the crypto market. If you are copying from someone else, then you can count it as training to be a better trader. Consider it as learning from a master of the trade but without them knowing that you are following their footsteps. Eventually, you’ll learn to take cues in market trends and make your own decisions.

Many copy traders use this strategy simply because studying trends and predicting outcomes is both mentally taxing and time-consuming. Following someone you believe would’ve come to the same conclusion as you is just easier and more cost-effective than doing your own homework. 

One risk of this crypto copy trading strategy is how you are prone to going down with the trader if their investment ends in losses. It’s the same as playing crypto games at Gamdom where you win and lose some but what you gain overtime is what matters. Just like how casino games have a return to player (RTP) rate, investors have average profit. Copy trading in crypto is as easy as choosing whichever investor has the best rate on a platform. 

Another risk that you should be more careful with in crypto copy trading is the size of your investment. Most platforms’ top-rated investors have large budgets to stake at an asset. Fully automated copy trading can end up putting the same budget size in the market and end up taking away too much from your wallet. Always study any plan before copying it to avoid staking money you would otherwise want to keep.

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Words: Clarence Clarke