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 of the 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 strides in the steep ups and downs of the cryptocurrency industry? Fortunately, there are tools out there 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, and its legality and limitations. He also talks about how a holistic approach to copy trading can play a major role in the development of traders.
What is cryptocurrency copy trading?
Cryptocurrency copy trading is an automated strategy that allows copying the trading methods of an experienced trader. This enables an individual to buy and sell crypto assets to earn profits without devoting much time to research or gaining proficiency in cryptocurrency trading.
Basically, cryptocurrency copy trading is about identifying skilled traders and literally re-executing their moves. A trader does not have to spend time picking market trends or learning complex trading methods. Instead, the software mimics what an experienced trader would do.
For example, if a trader with a copy trading program invests $100 to buy coin A, the program 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 correct 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 cryptocurrency social trading. On these platforms, experienced traders suggest which crypto assets to buy or sell. However, the process is manual and there are chances of traders failing to carry it out without error, which lowers the probability of success.
How does crypto copy trading work?
Choosing a skilled copy trader and software are two essential components to successful copy trading. Here are some highlights on how to get started in cryptocurrency copy trading:
Select the appropriate merchant
When one decides to go into crypto copy trading, the first step is to identify the right trader. The efficiency of copy trading is always related to the skill level of the trader that follows it. They need to carefully research the available traders and analyze their skill levels against certain criteria such as the profitability of trades, the total amount of money they manage, the level of risk and the number of followers, among others.
Which set of parameters one ultimately chooses depends on one’s own preferences. Amateur cryptocurrency investors need to carefully determine what is important to them in order to decide on a 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 a typical copy trading program where traders willingly agree to give member traders access to their trading moves. One can examine the track record of several major traders on the dashboard and choose the one that best matches their chosen parameters.
Principal traders themselves are paid a small fee to allow their trades to be copied. The fee is usually around 7% of the profits made. Thus, the system works for the 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 has zeroed in on the software, the next step is to set it up. Although it may take some time, it is a fluent journey later on as the process is done automatically. The software can usually be set up to invest the same amount or percentage as the trader being simulated.
Even after setting up the software, a trader can switch to another trader 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 master trader to diversify their portfolio. However, one needs to decide what part of the funds he wants to allocate to each principal.
Trading platforms algorithms are designed to automatically copy the trading of major investors. However, one is in complete control of the trading and can veto the program at any time. Traders can totally leave it up