For successful trading in the cryptocurrency market, at least basic knowledge is required. But what about a newbie? Copy trading is often done as start-up trading when you need to gain experience. Is this really the case, let’s look further.
Types of copy trading in cryptocurrency
Conventionally, two types of copy trading can be distinguished: automatic and manual.
The first is widespread among novice traders. You just need to select a crypto copy trading platform that provides such a service, register, pay a tariff and select one or more of the proposed strategies or bots. Copying transactions will be carried out automatically and displayed in your personal account.
Manual copy trading is used by investors with already certain knowledge about the cryptocurrency market. It keeps track of news and thoughts shared by professionals. In social networks, closed channels or groups are even created, where investment gurus suggest when it is worth buying and selling assets.
Automatic copy trading is carried out on special platforms. It is necessary to fill in the account data, and select the appropriate tariff. In this case, the platform acts as an intermediary between registered users and traders offering their investment strategies. You should not work on a newly created site, most likely, there will be difficulties with transactions.
Choosing a Trader
The choice of a trader, as well as the choice of a platform for work, must be taken with all responsibility. This is the key point in this strategy. It is necessary to give preference to more experienced investors, whose transactions in most cases are profitable. There are a couple of key parameters to look for when you select the trader.
Firstly, you need to look at the average Profit and Loss (P/L) which will tell you what is the average profit that a certain trader is making based on his historical performance.
Secondly, you need to look at how many positions a certain trader has open at the same time. This will give you a hint if the trader is trading on several assets at the same time and most importantly if he is closing his positions during the drawdown or if he does not cut his losses and just wait on them to become positive again.
Thirdly, look at the risk-reward ratio, as this parameter will tell you if the trader is taking his risk management seriously.
Advantages and disadvantages of copy trading
First of all, the benefits include saving time. You do not need to spend hours analyzing the market, conducting technical analysis, or studying charts. But at the same time, by repeating the operations of professionals, you can master the basic principles of trading on crypto exchanges.
The main risk is the absence of any guarantees for a positive result, which is typical of almost all investment strategies. You can also enter into cooperation with scammers, so the right choice of platform and trader is a very important criterion for success.
Copy trading is an investment method that may be of interest to novice traders. However, applying this strategy, it is necessary to evaluate all the risks and benefits, because the effectiveness of asset trading directly depends on this.