What is cryptocopy trading and how does it work?

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 a variety of skills needed to be a successful investor (knowing how to swim through the steep tides of the water).

Do amateur traders have no hope? Are they left to their own devices, do they speculate on the prices and take the leap to the sharp ups and downs of the cryptocurrency industry? Fortunately, there are tools that help such traders explore the potential of the cryptocurrency industry, simplifying overly complex cryptocurrency trading by following expert traders.

This article discusses what cryptocurrency copying is, how it works, its legitimacy, and its limitations. It also talks about how a holistic approach to copy trading can play a key role in the development of traders.

What is Cryptocurrency Copy Trading?

Cryptocurrency copying is an automated strategy that allows one to copy the trading methods of an experienced trader. This makes it possible to buy and sell crypto assets to make money without spending a lot of time researching or getting crypto trading skills.

Basically, cryptocurrency copy trading is about identifying skilled traders and literally re-enacting their moves. A trader does not need to spend time picking market trends or learning complex trading methods. Rather, the software simply mimics what the expert trader does.

For example, if the trader that the copy trading software follows invests $100 to buy coin A, the software will also spend $100 on the same cryptocurrency. The tool not only helps amateur traders use the expertise of other traders, but also helps them learn the skills to make smart investment decisions.

Alternatively, join trading groups on Facebook or Robinhood to get advice on the right cryptocurrency trading strategy at your own risk, as nothing is a sure shot in the crypto industry, given the volatility of the market. This practice is called social cryptocurrency trading. On these platforms, experienced traders suggest which cryptoassets to buy or sell. However, the process is manual and there are chances that traders will not be able to implement it without errors, thereby reducing the probability of success.

How does cryptocopy trading work?

Choosing a skilled copy trader and software are two essentials for successful copy trading. Here is some information on how to get started with cryptocurrency copying:

Choose the right trader

When deciding to go for cryptocurrency trading, the first step is to identify the right trader. The effectiveness of copy trading is always dependent on the skill level of the trader you follow. They need to scrutinize the available traders and analyze their skill levels against certain parameters such as profitability of trades, total amount of funds under management, level of risk and number of followers.

The range of parameters one finally chooses depends on their own preferences. Amateur cryptocurrency investors must carefully determine what is important to them in order to make a decision on crypto trading strategy.

One can question how they will be able to gain insight into the performance of different traders. It is to find all the necessary information about typical copy trading software, as traders willingly agree to give member traders access to their trading movements. One can examine the history of various main traders on the dashboard and choose the one that fits in with the parameters they choose.

The main traders themselves are paid a small fee to allow their trades to be copied. The fee is usually around 7% of the profit. Thus, the system works in favor of expert traders as well as those who follow them.

Set up the software

Choosing the right software is just as important as choosing the right cryptocurrency trader. Once the trader resets the software, the next step is to set it up. Although it may take some time, it is a smooth ride later as the process is automated. The software can usually be set up to invest the same amount or percentage as the trader being emulated.

Even after the software is set up, a trader can switch to another trader anytime they want. They can pause any trade the software makes or can decide on their own to close a position without waiting for the action of the main trader.

Cryptocurrency investors can also choose more than one leading trader to diversify their portfolio. However, one must decide how much funds they want to allocate to each lead manager.

Stay awake

Algorithms of the trading platforms are designed to automatically copy the trades of the main investors. However, one has total control over trading and can override the software at any time. Traders can leave it entirely to the software or view the portfolio selection of their peers themselves and take trading actions based on their investment objectives.

Is copying cryptocurrency trades legal?

Copy trading creates the impression of being a cutting-edge concept; but it has been around for a while. Regulatory bodies such as the Financial Conduct Authority (FCA), a UK financial regulator, and the European Securities and Markets Authority (ESMA), the EU’s financial market regulator and supervisor, have recognized copycat trading.

Understanding the legal status of copy trading in your country of residence before investing is just as important as determining that the dealer is regulated. Many regulations are framed for copy trading, so one can consider copy trading as a legitimate trading method if they use an authorized service.

Risks of cryptocurrency trading

The effectiveness of the cryptocurrency trading process largely depends on the choice of the platform and the expertise of the main trader. One wrong move can dampen the entire exercise. It is important to make every decision after due diligence.

There are so many crypto trading platforms that choosing the right one can be quite challenging for an amateur trader who has little knowledge of the domain. A trader who does not make a well thought out decision can cause them to lose hundreds or thousands of dollars. Experienced copy traders will compare the features of different platforms and go through their reviews before making a decision.

When looking for a trader, choosing one in the age of social media is challenging. A flood of information from all kinds of sources, reliable and unreliable, makes the task steeper. It is important to do adequate research when choosing a trader rather than just going through a person’s profile.

Any software, no matter how well developed, can go wrong at any time and start producing unexpected results. A trader must continue to monitor the cryptocurrency trading process and exit their position if they feel they are generating continuous losses.

Trading is a full-time job that requires cryptocurrency investors to spend whole days studying charts, updating themselves on the latest developments, and testing different scenarios to determine when to buy and sell cryptocurrency. While copy trading allows a trader to see the actions of master traders, they don’t get to see the work behind the scenes that led them to make those moves.

Holistic and long-term view of cryptocurrency trading

It is important to consider all aspects of cryptocurrency trading before investing. At its core, the cryptocurrency trading process is about leveraging the expertise of a previously successful trader, virtually negating the time it would normally take to develop the same level of trading skills.

If one is able to choose a tradeable platform and the right trader to copy, it can prove to be a profitable long-term trading approach. For beginners, learning how to buy and sell cryptocurrency can be confusing. In copy trading, they are able to see the action of an experienced trader in real time, helping them understand the nuances. They are able to learn, read the trading charts and have the ability to react to changing market conditions.

Copy trading can be the first step for one to become a skilled cryptocurrency investor. Regular monitoring of leading traders’ actions supported by behind-the-scenes learning can help amateur traders hone their cryptocurrency investment skills and develop as expert traders themselves.