What is copy trading? Learning how to do copy trading in digital currency transactions

Copy trading, as the name suggests, means copying the trading strategy of another trader. This method is suitable for new traders and allows them to imitate the trades of experienced and successful traders.

Many traders are trying to make profits from the digital currency market continuously. But tracking and fully understanding this fluctuating and turbulent market is a difficult task, and perhaps not every trader will be able to analyze it properly. In such a situation, it is not bad to see how more professional traders deal with the ups and downs of the market. This is exactly what users do in copy trading. But what is copy trading and how is it done?

In the continuation of this digital currency article, we will try to have a more detailed and deeper look at the copy trading process. Also, we will learn about the types of copy trading and the different strategies of this trading style, and we will look at some of the most popular copy trading platforms.

In addition, we review the advantages and disadvantages of copy trading and explain what points to follow when copy trading. If you are also curious about this trading and investment method, stay with us.

What is copy trading and what is its use?

Copy trading is a type of investment strategy that is carried out by automatically repeating the trading actions of experienced traders. This approach allows novice and experienced investors to actively participate in the financial markets without the need to research and analyze the complexity of the market.

In copy trading, people select and follow skilled traders on a copy trading platform. In this way, whenever the selected trader makes a transaction, the same transaction is repeated in the following account. This approach makes the investment process simple and easy, because followers can benefit from the expertise of successful traders without having to analyze the complexity of the market.

Read more: 10 misunderstandings about investing and trading in the digital currency market

The main advantage of copy trading is accessibility, as it allows those with limited time or expertise to participate in trades and earn profits. Also, this method can be a valuable tool for beginners and people looking for a simpler trading approach to diversify their portfolio and have different trading strategies.

Copy Trading Strategies

Copy trading strategies vary based on each copyist’s goals and risk tolerance. People can follow different traders based on their risk tolerance. If a person is looking for high profit, he has to take more risk. In contrast, strategies that place more emphasis on risk management and capital management usually do not seek to earn significant profits.

Some traders who follow copy trading platforms follow a strategy of diversifying their asset portfolio. These traders often use different trading styles or may even be active in different markets at the same time, such as forex and digital currency. Also, some traders accept higher risk to earn more profit, and some prefer to be conservative and prioritize capital preservation over high returns.

Read more: How to get rid of FOMO and stick to your strategy?

In addition, the duration of following the trader can also play a role in the copy trading strategy. A person may follow a particular trader for short, medium or long term. In a long-term strategy, users overlook short-term volatility, and in shorter-term strategies such as scalping and day trading, they are likely to miss out on longer-term uptrend profits.

Some traders also look for swing trades in more medium-term strategies and keep positions open for a few days to a few weeks. Also, some traders trade in favor of the market direction and some others take a position against the market direction. In each of these situations, the user should be careful of possible losses and set loss limit orders.

What are the types of copy trading?

Copy trading is done in various forms and methods. Each copy trading method corresponds to the preferences and trading styles of different investors. In this section, we are going to mention some of the most commonly used types of copy trading. However, the most important thing that traders should consider in each of these methods is risk management.

Read more: What is digital currency volatility and how is it done?

Although some copy trading platforms include special services such as position size adjustment or stop loss ordering for risk management in their platform, we must not forget that each type of copy trading has special advantages and limitations that may be suitable for a certain level of risk and objectives. Follow certain transactions.

Therefore, before making a decision regarding the choice of each copy trading method, the trader should research the specific features and risks related to each method and familiarize himself with its challenges.

Signal based copy trading

This method is the most common form of copy trading, where investors follow and repeat the signals and activities of experienced traders. Professional traders and signal providers regularly share trading signals including entry and exit points and times.

In this method, copy traders can choose to follow these signals automatically or manually execute trades. One of the most popular copy trading platforms that use the signal-based copy trading method is the eToro platform.

Copy trading portfolio

In this method, copycats follow pre-prepared portfolios of experienced traders or specific algorithms. In this way, investors can copy the entire asset portfolio instead of copying each trade or trader separately. Portfolios intended for copy trading are often offered based on specific strategies or specific combinations of diversified assets.

Read more: What are the types of bull market, bear market and suffering market?

The NAGA platform is one of the famous platforms that offer themed Copy Trading portfolios. In this platform, the CryptoTrader portfolio includes a diverse mix of digital currencies such as Bitcoin, Ethereum and other top altcoins.

Users who copy this portfolio strategy can benefit from trading multiple assets without having to search the market and select digital assets individually.

Copy trading in the style of mirror trading

One of the main and most popular styles of copy trading is called mirror trading, which involves repeating the entire trading strategy of professional traders or automatic algorithms. In this style, instead of selecting trades individually, investors mirror and repeat the operations of a specific algorithm.

In the mirror trading approach, all transactions are performed automatically based on certain algorithmic rules; Thus, the trader does not bear the stress of monitoring the market. But this style also has limitations, including the lack of awareness of the risk level of the strategy.

The Covesting section of the PrimeXBT platform offers an algorithmic cryptocurrency trading strategy called CryptoBulls. This strategy allows users to automatically place buy and sell orders in their account, similar to the cryptobulls algorithm.

Read more: How is digital currency trading different from investing in digital currencies?

Algorithmic copy trading

This automated method of copy trading relies on computer algorithms to identify and replicate trading opportunities. These algorithms are predefined and follow certain parameters. Investors can choose algorithms that match their risk tolerance and investment goals.

One of the most prominent algorithmic copy trading platforms is the Shrimpy platform, which offers a wide range of cryptocurrency trading algorithms. Each of these algorithms has a specific strategy and offers a different risk profile.

Combined strategies

Some copy trading platforms offer different trading methods in a diverse and mixed manner. In this way, people can follow specific traders for a specific class of assets, while using algorithmic strategies for other assets.

For example, a user may follow a specific trader’s signals to trade Bitcoin, but look for an algorithmic strategy on a different platform service for Ethereum. One prominent example of this style is the ZuluTrade platform.

Read more: 7 ways to earn money from digital currencies without trading

Social trading

Some consider social trading as synonymous with copy trading; But social trading and copy trading can be considered as two distinct approaches to trading. Social trading platforms combine elements of social media with trading. On these platforms, investors can interact with each other on a peer-to-peer basis, share their views and view the trading activities of their peers.

In social trading platforms, users get to know the logic of trading decisions, market analysis and risk management of other traders. Personal communication between traders and investors also helps increase trust and transparency between users. In addition, social trading creates a community for traders to participate in various trading topics, follow market sentiments, and collaborate with others.

One of the popular social trading platforms is CoinSocialCopy. By becoming a member of this platform, users can follow the trading activities of other members and, if they wish, repeat their desired strategies manually.

Read more: Comparison of technical analysis and fundamental analysis in financial markets

What is the difference between social trading and copy trading?

Each social trading and copy trading method has unique advantages and disadvantages. Social trading networks are not just copy trading and allow traders to learn about each other’s performance records and gain more knowledge and experience from their peers. In fact, social trading provides a more suitable platform for learning to trade, which often does not happen in copy trading platforms.

Also, in social trading, traders can flexibly trade manually and make necessary changes in their transactions. In fact, users of social trading platforms can get various information and ideas and then make their own decisions about their trades.

However, the flexibility of social trading can be considered a negative point for beginners or people who do not have enough time and knowledge to analyze the market. Because, trading with the social method requires decision-making and continuous monitoring of the market and can be more time-consuming compared to automatic methods such as copy trading.

Read more: Familiarity with 5 risk management strategies in digital currencies

What are the advantages and disadvantages of copy trading?

Copy trading has many advantages and disadvantages, some of which we mention in this section.

Advantages of copy trading

• Ideal for beginners: Copy trading makes trading simple for beginners. This method allows people who do not have much knowledge and experience about the market to follow and profit from the strategies of the most experienced and skilled traders.
• Asset diversificationTheI see: Investors can diversify their portfolio by copying multiple traders and manage their capital better by spreading risk across different asset classes and trading styles.
• Saving time and energy: Copy trading requires less time than the market analysis method. Also, it usually eliminates the need for traders to constantly monitor and analyze the market. In this approach, the user can leave the task of making transactions and managing his portfolio to the platform after choosing the signal provider algorithm or trader.
• risk management: Availability of statistics, data, reports and information about traders in copy trading helps in risk management and investment.
• Learning trading strategies: Copy traders can observe the operations of professional traders and learn and practice different strategies in this field little by little, carefully in their trading behavior.

Read more: training to build a trading system; Where do we start?

It goes without saying that there are also advantages for traders who provide signals, including the possibility of receiving commissions or subscription fees from traders and followers. Also, these people can get a share of the profit of copy traders and potentially increase the profit of their trades.

Disadvantages of copy trading

Despite the many benefits of copy trading, copy traders should be aware of the risks associated with this trading method, which we will mention below.

• Probability of loss: A trader’s past success is not necessarily a guarantee of his future trading performance. The transactions of the most experienced traders may turn out to be losers, and the possibility of loss and error in trading is never zero.
• Hidden risks: Some copy trading platforms may not disclose all the risks associated with copying trades. For example, incomplete trading history of the platform or risky strategies of traders are not visible in their profile.
• Platform Fee: Trading with copy trading platforms often comes with fees, including subscription commissions and performance fees, which can reduce overall trading profits.
• Limited flexibility: Copy traders are often committed to the strategies and decisions of the traders they follow. In this way, one potentially misses out on opportunities that do not match the strategies of one’s chosen traders.
• Technical and repetitive problems: Things like technical problems or low speed of repeating transactions on some platforms can cause the price to slip and destroy part of the profit of copy traders.

Read more: Digital currency analysis tools you should know before investing

How to do copy trading?

Special platforms in the form of software, applications or online websites provide copy trading services to people. Also, some exchanges and trading platforms consider a separate section for copy trading. Copy traders must register and create an account in copy trading services or enter the copy trading section of their desired exchange.

Copy trading platforms make available to copiers the statistics and performance data of the signal provider traders, including the monthly returns and profitability of their trades. Thus, users can choose and follow one or more traders according to their signaling strategy and personal preferences.

Also, according to the copy trading platform services, copy traders can set priorities for their assets and risk management. After making the necessary settings, every transaction made by the signal trader is automatically repeated in the accounts of the copiers. Signalers also receive a percentage of their service profits from copiers in case of winning trades.

Tips for Copy Trading

Note that the contents of this article are written only to familiarize you with copy trading and cannot be considered investment advice or advice. Therefore, if you decide to use copy trading platforms, be sure to do your own research. Considering the following tips can help you when copy trading.

Assess the risk of transactions

Before making copy trades, assess your risk tolerance and financial goals. All transactions, even if they are done with the analysis of the most professional traders, carry a percentage of risk. Furthermore, a trader’s good performance in the past may not necessarily be repeated in the future. Also, use risk management tools such as stop-loss orders that copy trading platforms often offer.

Choose a valid platform

Choose a reputable and reputable copy trading platform that offers security and transparency. Also, it is better to deal with a wide variety of traders on this platform so that you can make the best choice. In the following sections of this article, we will provide you with a list of some of the top copy trading platforms.

Research the traders

Carefully evaluate the trading history, strategy, risk management and performance metrics of the traders you plan to copy and measure the factors influencing the success of their trades. Also, carefully control the amount of capital allocated to each trader.

Read more: How to research the digital currency market?

Diversify your portfolio

Do not put all your capital under the performance of a particular strategy or trader. Copy multiple traders with different strategies to better manage capital by spreading risk. In addition, allocate your assets to different traders with a reasonable percentage. Avoid using excessive leverage or risky investments as much as possible.

Have realistic expectations of copy trading

Remember that no trader can guarantee the profit of all his trades and copy trading is not a guaranteed way to make money. Set realistic expectations of trade returns and be prepared for profits and losses.

Follow the performance of traders closely

Monitor the performance of the traders you copy on a regular basis. If a trader’s performance is consistently below your expectations, stop trading that trader and add new traders and algorithms to your profile to copy based on your up-to-date research.

Update your knowledge

Although copy trading can help beginners and people with less knowledge of the market, this does not mean that there is no need to know the market. Follow as much news and market developments as possible that may affect your investment. Do not forget that in the turbulent environment of digital currencies, market conditions can change quickly.

Read more: The biggest mistakes beginners make in the world of digital currencies

Get to know the basics of financial markets, including the crypto market, and try to increase your technical and fundamental knowledge. Learn more about investing so you can make more informed decisions.

Before taking any action, learn about the rules and fees of the platform

Familiarize yourself with the fee structure of the copy trading platform, including any fees associated with copying traders or withdrawals. Follow platform policies and understand leverage limits, position size limits and other platform settings. If there is a chat or messenger feature, try to communicate with the traders you are copying.

Do not rush and start small

If you are new to copy trading, start with a small amount to gain more experience before committing to larger amounts. Also, review and modify trades and strategies regularly. Be calm and patient. Avoid making impulsive decisions based on short-term market fluctuations and stick to your investment plan.

The best platform for copy trading What is?

In this section, we will introduce some of the best platforms for copy trading of digital currencies, each of which can meet the specific needs of traders.

Kamaztri

The Commas3 platform offers a variety of customizable trading robots and portfolio management tools. In this way, the Commas3 platform can be a suitable platform for both beginners and advanced traders.

Read more: 8 of the most common mistakes of traders that you should know

fxto

The FX2 platform also offers unique features and has an acceptable speed in performing copy trades. Also, this platform shows good flexibility in trading settings.

avatar

The AvaTrade platform is suitable for both professionals and beginners and includes a wide range of trading assets. Avatrade operates fully within the framework of the law and ensures the security of the trading environment.

Naga

NAGA platform provides social trading services to its users. On this platform, people can follow a vast collection of over 9,000 advanced traders. Naga is a great choice for people looking for a social trading community.

OKX

The OKX platform is ideal for futures traders as well as spot cryptocurrency trading. AKX’s copy trading tools allow users to replicate the strategies of expert traders in the cryptocurrency market.

Trading Funds

TradingFunds trading company provides technical and capital infrastructure to traders. The platform also allows its users to adjust their trading activities and withdraw their profits regularly.

Etoro

We can consider the eToro platform as the largest and most popular copy trading platform in the world. The platform supports a wide range of assets, including cryptocurrencies, and provides a user-friendly interface for both novice and professional traders.

Betobroker

B2Broker focuses on corporate copy trading. The platform provides enterprise customers with business-to-business (B2B) trading operations, scalability solutions, trading tools and more.

Read more: 6 ways to control emotions when buying and selling digital currencies

Zolotrid

The ZuluTrade platform has a wide user base and offers automated copy trading services. The diversity of the assets of this platform is also considered another point to consider about Zolotrid.

Tips for choosing the best copy trading trader

In copy trading platforms, the better and more skilled trader you choose, the higher your chances of profit and success. In this section, we mention a number of features that we must pay attention to in order to choose the best trader.

Trusted and stable traders

Instead of evaluating the number of followers, pay attention to the amount of money that other users are investing in a particular trader. Also, make consistency a priority. Consider traders to follow who have been profitable for consecutive months with minimal losses. Make sure the trader has been active for at least 12 months and has a stable performance history.

Also, check the level of activity of the trader. The trader’s activity, especially during the last five weeks, is an important criterion that should not be overlooked. In addition, the trader’s activity should be consistent with his time frame, both long and short term.

Trader trading returns

Beware of traders who promise very high profits. Excessive profits may occur due to luck or risky strategies. Don’t forget that stability in profits is more important than rapid growth. Check the trader’s profit charts to see how much the trader’s profit has been steadily increasing over time.

Trader’s risk tolerance

The issue of risk taking is another point that you should consider when checking the profitability of traders. Usually, most social platforms consider a score between 0 and 10 to rate the riskiness of their traders. Look for traders who have a consistent risk score that matches your risk tolerance. For a more conservative approach, a risk tolerance level of 0 to 5 is usually recommended.

Read more: How to reduce the risk of your investment portfolio?

Also, don’t forget to check the size of the trades. Trades that take a large part of the trader’s capital are often associated with excessive risk. The most ideal position size to enter the trade is less than 10% of the trader’s total capital. Look for traders who have lower and more reasonable average trade sizes and don’t risk all their capital on a particular trade.

Number of transactions

The more trades a profitable trader makes, the more his expertise is superior to the factor of chance. Of course, in the meantime, you should also consider the trader’s strategy. Long-term traders probably have fewer trades, which can be justified by their approach.

Note that too many open trades can be considered a weakness. However, consider market conditions and the trader’s strategy for holding open positions.

Trader’s trading strategy and behavior

Read trader profile descriptions and understand their investment style, strategies and specific market focus. Look for traders who specialize in certain markets or products. In this way, you can diversify your investment portfolio with different strategies.

Take seriously the issue of continuous monitoring of trader’s decisions and diversification and enter the flow of copy trading with sufficient knowledge and analysis. Also, it is best to look for traders who communicate effectively with their followers and behave professionally in both winning and losing trades. These features can be considered the basis of profitable copy trading transactions.

Frequently Asked Questions

In the end, we mention some of the most common questions that are asked about copy trading: