The phenomenon of Crypto Copy Trading has seen a remarkable surge in popularity, particularly amongst the new generation of retail traders. In this post, we will provide you with all information about copy trading: What it is about, how it works, and the risks involved. Afterward, we will spotlight the best exchanges to use. Let’s get into it!
Crypto Copy Trading — What Is It About?
Copy trading effectively democratizes access to cryptocurrency trading, making it a more attainable endeavor for newcomers. Nonetheless, traders need to tread with caution regarding potential pitfalls such as mimicking traders with no vested interest or picking inappropriate platforms.
The influx of younger participants into crypto and traditional markets is revolutionizing the investment landscape. This surge has arguably triggered the rise in social trading, a concept whereby a community of traders exchanges insights. A slew of platforms, similar to Wall Street Bets, are emerging to cater to this new breed of traders in search of a communal trading experience. This evolution has subsequently given rise to the concept of ‘trading influencers’ and copy trading.
In essence, copy trading allows novices and seasoned investors alike to mirror the trades of successful, experienced traders, essentially offering a stepping stone for those still acquainting themselves with the crypto market.
Benefits of Copy Trading
Copy trading is distinguished by several unique characteristics that make it especially appealing to those dipping their toes into crypto trading.
Simplifies Entry into Trading
Venturing into the world of crypto trading requires a considerable investment of time and effort. The sheer volume of research needed to gain competency can deter many potential traders.
Copy trading, however, provides a more accessible entry point, allowing traders to embark on their journey by simply choosing an experienced trader to emulate.
Minimal Active Involvement
Active trading necessitates not only extensive research but also demands a substantial time commitment. Constant vigilance is required to stay updated with market trends and manage positions effectively, which might discourage traders with limited capital.
On the other hand, copy trading delegates the bulk of this workload to the copied trader, allowing you to leverage their diligence in market research, strategy formulation, and more.
Excellent Learning Opportunity
Copy trading is a powerful learning tool for those seeking to understand the crypto market dynamics. By shadowing experienced traders, newcomers can glean valuable insights into trading mechanisms.
Moreover, most trader influencers willingly share their data and reasoning behind their trades, thereby offering direct, hands-on insights into their decision-making process. This makes copy trading an effective learning platform, eventually empowering traders to strike out on their own.
Risks in Copy Trading – and Mitigation Strategies
Although copy trading has its advantages, it isn’t without potential risks. It’s essential for every trader to recognize these pitfalls and employ strategies to circumvent them.
Avoiding Impulsive Trader Selection
Upon accessing a copy trading platform, traders are presented with return on investment (ROI) statistics for each trader influencer. Selecting the trader with the most attractive returns might be tempting, but this strategy could prove faulty.
In truth, many successful crypto traders owe their fortunes to luck more than strategic acumen. Those taking the highest risks often see short-term gains, but these winnings seldom endure in the long run. When market conditions inevitably shift, the top performers might end up losing their entire investments.
Hence, instead of focusing solely on ROI, it’s advisable to scrutinize each trader’s strategy and choose one that resonates with your financial sensibilities.
Importance of Preliminary Research
While copy trading offers a more hands-off approach than other trading methods, conducting basic due diligence is still essential. Traders should familiarize themselves with the fundamentals of crypto trading before investing substantial amounts of capital.
Having a basic understanding will enable traders to discern between those with a sound trading strategy and those who rely on excessive risk-taking. In the long run, this fundamental research will yield substantial dividends.
Ensuring Trader Has Adequate Skin in the Game
Before opting to emulate a trader’s moves, verifying the trader’s vested interest is crucial. Does the trader have a significant capital investment backing their trades? If the answer is negative, avoiding copying that trader is advisable.
Unfortunately, the crypto universe is rife with questionable characters, necessitating caution when entrusting your capital to others. One way to circumvent this risk is to choose traders who risk their own capital and operate on reputable platforms.
Selecting the Right Platform
Choosing an apt platform can significantly impact a copy trader’s performance. Factors such as platform security, transaction fees, and user-friendliness play a crucial role in copy trading.
When choosing a copy trading platform, traders should examine the platform fees and any additional charges specifically related to copy trading.
Another critical factor is the platform’s ease of use. Both novice and experienced traders will benefit from an intuitive platform. For example, the leading crypto exchange, Bitget, provides a “One-Click Copy Trade” feature, making initiating copy trading in both spot and derivatives markets straightforward.
Moreover, platforms with a larger community of crypto influencers offer a wider choice of trading strategies to emulate.
Avoiding Premature Exits
Billionaire investor Peter Lynch famously asserted that the stomach plays a more crucial role than the brain in investing. This underlines the necessity of resilience, particularly when your portfolio takes a hit.
A common mistake is to abandon a position at the first sign of underperformance. However, research suggests that persistence often yields better results.
A study by Dalbar revealed that the average investor consistently underperforms the market, primarily because they tend to enter after an asset has appreciated in value and fail to remain invested long enough to realize long-term gains. Therefore, the best course of action is often to identify traders whose approach aligns with your own and stick with them through thick and thin.
Exchanges That Offer Crypto Copy Trading
Based on our research, here are the biggest crypto exchanges that offer copy trading. Worth mentioning that based on our research Binance does not offer crypto copy trading currently.
Crypto Copy Trading on KuCoin
KuCoin is a globally recognized cryptocurrency exchange known for its wide range of supported cryptocurrencies. As of my last update in 2021, it had listed more than 200 cryptocurrencies, making it an excellent platform for exploring altcoins.
KuCoin also offers several other services, including futures trading, spot trading, staking, and lending. Its user-friendly interface, combined with advanced security measures and 24/7 customer service, makes it a popular choice among crypto traders, both beginners and seasoned ones.
Crypto Copy Trading on ByBit
Bybit is a cryptocurrency derivatives exchange with a strong focus on trading pairs with Bitcoin, Ethereum, EOS, and XRP. It is renowned for its speed and reliability, processing transactions with minimal latency. Bybit offers features like perpetual contracts and futures trading.
It also boasts a robust risk management system, offering features like the dual-price mechanism, no-overloaded policy, and auto-deleveraging. Bybit is well-regarded for its responsive customer support and user-friendly interface, making it a go-to platform for many traders interested in derivatives trading.
Crypto Copy Trading on Bitget
Bitget is a comprehensive digital asset trading platform that caters to the needs of both individual retail clients and institutional investors globally. It offers a variety of trading services, including spot trading, futures trading, and an increasingly popular copy trading service.
Bitget stands out for its efforts to simplify trading for its users with features such as “One-Click Copy Trade.” It also strongly emphasizes safety, providing a secure trading environment for its users. As of my knowledge cutoff in 2021, Bitget continues expanding its user base and range of trading services.