If you’ve been around the world of bitcoin for any amount of time, there’s a good chance you may have heard of copy trading. While it’s not new to the industry, it has yet to gain much traction. What is copy trading and how does it work?
How Does Copy Trading Work?
Just as the name implies, copy trading allows you to essentially copy the actions taken by another trader, typically one who is recognized as an expert trader.
With copy trading, any trade the expert makes is copied over to the user’s account. The amount invested is based on two factors: the amount invested by the copying trader and the maximum investment percentage allowed by the platform.
Sites that allow copy trading are used mostly in forex and stock markets, with some of the most popular ones including Darwinex, Zulu, and eToro.
So now that we know what it is, let’s explore whether or not it works for those who regularly trade bitcoin and altcoins.
To do so, we’ll look at some of the benefits and drawbacks of copy trading.
Benefits of Copy Trading
New Traders Experience Less Risk
Because copy trading mirrors the trading strategies of well-regarded, seasoned traders, novice traders will be able to mitigate the risks of trading by relying on the knowledge of people already trading successfully in the digital asset space.
Easy Learning and Less Hassle
Learning the ins and outs of how to trade isn’t easy and it can be time-consuming. If a person has an extremely busy schedule, it might be near impossible for them to find time to trade, let alone learn how to do so. Copy trading helps the novice trader learn the ropes of trading more easily.
Drives Adoption
Reduction in risk in crypto trading can result in wider adoption by novice users. After the upward trajectory of bitcoin in early 2017, people learned that it’s possible to make profits from digital assets. Copy trading makes it even easier to do so while providing trust in the industry.
Expert Benefits
Of course, there are benefits for expert traders as well. These come in the form of commission for allowing other users to copy their trading behaviors. This gives professional traders a way to earn a little extra while doing what they do on a daily basis.
Disadvantages of Copy Trading
Time Lag for Orders
One problem with copy trading platforms is how quickly the market moves. A short lag occurs between the time the experienced user makes the trade and copies are created. In that amount of time, a loss could occur for the person copying, which is not a pleasant experience in our opinion.
Same Platform
Another drawback to copy trading is that traders have to use the same platform to execute the trade. While this isn’t a significant setback for many users, it does force them to choose an ecosystem they may not like or with which they may not be familiar. This means traders may have to switch if they want to use copy trading, even if it’s inconvenient to do so.
Does Copy Trading Make Sense for You?
As interest in the world of digital assets continues to grow, so too does the need for new users to gain experience in the trading world. Copy trading may be a good option for those interested, but who need to hone their skills or do not have the time necessary to do in-depth research on their trades.
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