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What is Copy Trade? How can a beginner investor with no experience, knowledge, and time still make money in the financial markets? Assess opportunities and risks when using copy trading. This article of Cryptocoin24h will guide you on how to choose an investor that suits your style.
What is copy trading?
What is copy trading? Copy Trade or Copy trading translates to COPY TRADE. Transactions on the master account from experienced investors will be copied entirely or similar to the simulated account. Of course, the original account has profits or losses, the copy account also has the same similarities.
According to the ratio between the two accounts, any trading actions performed by experienced traders such as opening orders, stop loss, and closing orders will be executed in the same copy trader's account.
Specific example:
Account A has a total of $100,000 and a profitable trade of $120,000. Account B copies account A and have the same capital of $100,000, resulting in $120,000.
Account C also copies, but the capital of only $ 10,000 will also have a profit of $ 12,000.
Traders will still have the ability to disconnect from the master account and manage orders themselves. Similarly, the copy trader can still not disconnect but can also cut orders, SL, TP, etc.
Before starting the copy trade, you need to have your own analysis of the trading position. Take into account the risk to be taken and the amount of capital that can be committed to the transaction.
Because even if you choose a highly specialized trader to make the copy trade, your capital is still at risk of losing everything as usual.
How does copy trading work?
Copy trade connects part of your portfolio with the portfolio of the trader of your choice.
After performing a copy trade, all opened positions in the master account's portfolio will be copied to your account. Accordingly, their future positions will also be copied by your account.
Example: On another cryptocurrency exchange, you find a potential investor and want to copy trade their portfolio.
The potential investor profile of a newcomer is usually a high-profit account with a huge win rate. However, there are downsides if you FOMO this.
When copying trade, you need to consider setting a few parameters:
- Copy Amount: The amount you want to place for each copy trade. When you choose the amount you wish to copy is 1000 USDT, no matter how much the master account is in, your order amount is only 1000 USDT.
- The maximum copying per day: No more copies will be made if the trading volume exceeds this maximum threshold.
And there are many other parameters to pay attention to depending on the exchange that supports copy trade.
What are the benefits of copy trading?
What are the benefits of copy trading? Copy trading is a form of portfolio management. The main goal is to find other investors with experience and high returns. The copying process allows the trader to monitor the strategies of other traders.
Copy-trading can be useful for traders just starting or who don't have time to watch the markets. In general, you should use copy trading that focuses on short-term trading. But several different strategies are also used to generate revenue.
While profitable, there are also many risks involved, and traders should remember that past results do not guarantee future profits.
Portfolio Diversification
Copy trade does indeed help traders diversify their portfolios, which means more money in the market.
Like, instead of buying Bitcoin, you prefer to split the capital to invest in other coins like Ethereum (ETH), Ripple (XRP), etc. Copy trade, too, should not focus on putting all the invested capital into one trader. You should divide your portfolio among other traders to make copies.
To diversify the selection of traders, you can base on different. For example, you want to invest a short-term or target test day profit should consider copy traders using different timeframes.
Copy-trading with a large team usually has a complete pattern. Most of them form a subscription model. As a participant in that model, you have to pay a fee to copy trade every month.
What are the risks of copy trading?
What are the risks of copy trading? The biggest risk a trader will face is market risk. If the strategy a trader is copying fails and loses money.
Investors also face liquidity risks. If the instruments they are trading experience poor liquidity when the market is volatile.
Finally, the trader can face systemic risk if the traded product experiences a sharp drop. And there are quite a few risks that you need to share directly to understand fully.
Criteria to choose a Trader to execute Copy Trade Crypto
Traders that provide consistent results over time
I.e., a trader that offers 3% profit per month for one year is much more consistent than a 6-month profit trader of 10% and six months lost 7%. When you look at the performance chart history, consistency will be shown that the chart is going up.
Trading history at least one year
The longer the trader's trading time, the better. This allows you to evaluate your performance under any market conditions.
Number of followers
The more people who follow that trader, the better. This is a significant advantage of a trading network as it allows you to benefit from what investors are analyzing and entering. However, it would be best if you did not use this as a standard element.
Look at the trader's strategy and profile description
Do they have a clear strategy? Is this a trader or trading company? See if they are doing their analysis and entry or are using a trading bot.
If a trader uses an automated system and strategy, try to determine if they are monitoring the system. No bot is perfect, and they are based solely on historical data.
Therefore, no one can predict how a system might perform under future market conditions, but professional traders will know when to use manual trading.
Consider how they set their stop loss
Consider how they set their stop? At what range is it located? Putting a stop loss (stop loss) is used to manage the risk of a trade.
The stop loss level determines the level of risk (i.e., how much money can be lost on this order). No stop loss means unlimited risk exposure, which can be dangerous.
Look at the Win rate
Usually, a high win rate (win rate) of 80% or more will be a fascinating number to attract copy traders.
Entry frequency
Follow them and hear what they have to say to compare. A trader who regularly updates their strategy and market views are more likely to follow the market closely and will be able to react and adjust their strategy immediately accordingly.
And there are many more criteria you need to experience to know. Not just looking at the win rate that FOMO follows.
Summary
Currently, many platforms allow copy trade. Each platform has different powerful, advanced copy tools. When participating, you also need to evaluate the overview to make the right choice.
Immediate profits cannot shape future outcomes. When deciding to copy trade a certain trader, you should consider the risks of it. Therefore, also consider using capital appropriately.
Moreover, copy trading is also a form of investment portfolio diversification. If you know how to use it properly, it will avoid liquidity risk or related to market risk. This also helps you to have a substantial profit in your pocket. Hope's article Cryptocoin24h on “What is copy trade? Assessing opportunities and risks when using copy trade” is helpful to you.
