Imagine it’s the 1970s. You’ve heard of this trader called George Soros who has started making waves in the stock market. He is reputed to be one of the smartest traders around and you wish you could simply copy his trades. Maybe you could also have gone short on the British pound in 1992 and made a neat profit.
Well, it’s 2021 now, and you can do that thanks to copy trading. And instead of stocks, you can copy crypto trades, a highly disruptive asset class that is fast gaining traction.
What is Copy Trading?
Copy trading is a form of social trading where a trader’s positions are copied by other trader accounts when they are opened or closed. These positions can be copied manually or automatically. The copier doesn’t follow the original trader’s actual strategy, they just blindly copy the trades.
This is a very smart way for newbie traders to learn how to trade crypto on their own. Cryptocurrencies have the potential to create massive wealth but it is viewed as a high-risk asset given the lack of regulation and significant volatility. Copy Trading is a smart move especially for novice investors who are looking to enter the crypto space.
How Does Copy Trading Work?
It starts with registering your account with a particular copy trading platform and then choosing an experienced/successful trader to copy. A key point to keep in mind is to choose traders whose trading style and goals align with yours. If you are someone who wants to trade in Bitcoin primarily, and has a play for a 20% profit or a 5% loss a day, choose a trader with a similar style.
How Does One Choose a Trader to Imitate?
The best part about copy trading is that every trader has skin in the game. Traders are risking their own funds when they buy or sell a particular asset. However, you should take your time, research and run a couple of demo trades before settling on the traders of your choice. A few criteria to keep in mind while choosing a trader are:
- Years of experience.
- Trading track record.
- Crypto expertise (as in which crypto makes them the most money).
- Number of open positions.
- Kind of trades (technical/fundamental/news-based).
- Crypto volatility
Best Copy Trading Platforms for Crypto Traders
There are quite a few options available for crypto copy traders. How do you choose the right one? You research the platforms and choose one that has a large number of users. Remember, in copy trading, the more traders a platform has, the better it is for a copier.
Some of the leading ones include:
It was founded in 2018, and was one of the first crypto derivatives exchanges to offer copy-trading features for users. The trading categories include but are not limited to digital assets, global indices, foreign exchange and more. The R&D team has been assembled from some of the world’s top financial institutions and Internet companies.
Image source: Bingbon.
Bingbon lets users dip their toes in demo trading to get some practice using an analog token called VST. It can be used as margin in Copy Trading for demo trading. The profit generated from VST demo trading has no real value and can’t be withdrawn and a user gets 100,000 VST on registration.
Bingbon has over 300,000 registered users and $20 million of copy trades are completed every day.
One of the largest social trading platform’s eToro allows you to view what real traders are doing and copy their strategies automatically. Copy trader is eToro’s most popular feature. eToro in fact claims the average yearly profit of its 50 most copied traders is close to 84%.
Image source: eToro.
On this social-yield farming platform, you can learn and auto-invest on the latest farming opportunities by following top farmers. Here, you can look to copy traders based on several metrics such as historical annual percentage yield, farming philosophy and even your risk appetite.
Don-Key allows traders to build their own De-Fi strategy by leveraging its easy to use interface. It basically aims to lower entry barriers to yield farmers as well as liquidity providers by opening the DeFi world to these groups of individuals.
Image source: Don-Key.
This platform allows you to create, and invest in other strategies, multisig syndicates and decentralized autonomous organizations(DAOs).Enso was created on the principle that DeFi should not be limited to whitelisted integrations but should be completely open and easily accessible.
The Enso platform enables the creation of an unlimited number of strategies as well as yield farming integrations that is made possible by its user interface where you can discover strategies by subscribing or following other expert traders.
Image source: Enso Finance.
Pros of Copy Trading
Exposure to different cryptos
It helps investors to diversify their portfolios into cryptos that they are unfamiliar with.
No more missed opportunities
DOGE zoomed thanks to a tweet by Elon Musk. That tweet would have been missed by people across different timezones. Copy traders who had automated their trades could have made money while they slept.
Limited time, maximum rewards
Copy trading is great for people who don’t have time to go in for detailed analysis. Investors can simply follow traders with excellent track records.
5 Golden Rules of a Successful Copy Trader
Do your research
Copy trading doesn’t absolve investors of the need to research. One should not blindly enter cryptos without any idea of what’s happening in the space. More importantly, choose traders with good track records to hitch your wagon to.
Copy trading carries certain risks
A lot of copy traders believe that copying successful traders will eliminate risk from their portfolio. However, even the best trader can have a bad day.
Always keep monitoring
Traders run on streaks. A hot streak can end abruptly. If a copy trader doesn’t track the trader they are copying from, the value of their portfolio will be decimated.
Set stops and limits
Smart copy traders always set stops and limits to manage risk exposure.
Don’t put all your eggs in one basket
This Is simple. It doesn’t matter how successful a trader is; one shouldn’t invest all their funds into one trader. Always diversify.
Ultimately, a copy trader is as good or bad as the trader they copy. Copy trading is a great way to enter new markets and learn about trading strategies on the move. While trading in cryptos, one has to always keep in mind the fact that cryptos by their very nature are very volatile and they will experience sharp movements either way