The Basics of Copy Trading
As previously stated, cryptocurrency copy trading—also known as social trading—refers to the practice of replicating trades made by another trader. That implies that you profit when they do and lose when they enter bad positions. The best aspect is that you may choose from thousands of traders, so you can start investing right away after selecting your favorite. The investor might be called a master trader, a master account, or just a signal provider.
In the following sections of this post, we’ll discuss all of that and more. Because you have no control over when the signal provider places trades, it is preferable for the entire process to run automatically to ensure that you place all of the trades as soon as they are opened on the master. To enable this, copy trading platforms usually provide a trade copier. This is simply software that bridges the master and copier account for seamless real-time trade duplication. Some tech-savvy pro traders prefer using custom-made bots instead.
These are computer programs designed to duplicate positions from master accounts based on a set of rules created by the programmer. They come in handy for platforms that don’t offer copy services. For now, we will only stick to all-in-one crypto social trading websites.
Cryptocurrency Copy Trading Platforms
With hundreds of websites claiming to offer copy trading services, it may be quite an uphill task to successfully select the best ones. We saved you the trouble by compiling for you the five best cryptocurrency copy trading platforms based on our own experience. Here we go.
How to Select the Right Trader
Are you feeling eager to start copying trades? Choosing the right traders to follow is not always a walk in the park. The best copy trading platforms like the ones listed above usually have hundreds of accounts you can follow, so it takes time and good skills to sort them out. In this section, we discuss the key metrics we go for while performing an analysis to find the best copy trading signal providers. Here is a detailed breakdown.
- Reputation: Reputation is the first thing you want to check when looking for the right signal provider. You can tell how trusted a master account is by looking at the number of accounts following it. That’s not enough, it may be best to also find out how many of these are trading with real money. Some people follow signals with free-play accounts as a way of tracking performance before deciding to duplicate the trades on live accounts. At least half of the followers should be live. A master account with a few followers is generally a bad sign, especially if the trader has been active for a long time. It signifies low trust from followers. Lastly, investigate how much the master account is trading. The higher the account size, the more vested interest such an investor has, meaning they will be cautious not to lose money carelessly.
- Returns: Once you have sorted out a decent list of reputable traders, you want to rank them according to their returns. Of course, high returns mean more money for you. However, abnormally high profits may be questionable. It may be best to look for accounts that have moderate but consistent profit increases. Annual returns surpassing 100% are usually due to luck in most cases. Some traders may achieve this through high risk, which wouldn’t be good for your money. So you may need to couple this with other metrics if you are to consider investing in such a portfolio.
- Risk: Now that we have discussed returns, it’s essential to learn that no matter how lucrative the annual returns seem, a high drawdown may not be a good sign for a signal provider. As much as we want to take home huge profits, we try to keep our risk as low as possible. We believe it’s much better to miss risky opportunities and live to see another day than wipe our account trying to buy a Lambo in one single day. Stats show that over 90% of traders don’t make it to three months, and you don’t want to be part of them. An overall drawdown of less than 10% is considered decent enough. In terms of risk per trader, we find 2% fair enough.
- Consistency: Next, zoom in on consistency. A portfolio with multiple successful trades over several months and few losses says much about the competency of the trader. You may want to avoid signal providers that take trades only once in a while as it could be difficult to tell whether they are successful by lack, or an actual strategy. New master accounts, however, how good they look might need extra caution.
Pros & Cons of Copying Others’ Trades
- No trading experience required
- Good source of passive income
- Offers easy diversification
- Suitable for both experienced and new traders
- No control over trading decision
- Master mistakes can be costly
- You will have to pay a commission
The process of learning how to trade cryptocurrencies can be exhilarating, but early mistakes can be expensive. That is where copy-trading comes in. Simply choose the best signal provider and begin copying their trades. Don’t forget to look at important elements like their standing, hazards, reliability, and more. It’s also crucial to keep in mind that past success is never a guarantee of future results. Margin trading carries high risks, so we always invest only our risk capital. Pro traders could also imitate profitable master accounts. It saves a tonne of time. Finally, conduct additional research and only begin trading when you are prepared and fully aware of the risk involved. Please feel free to browse our websites for more articles. We share lots of informative stuff from our daily experiences.