Copy trading is an effective strategy to increase your profit by imitating the trading decisions of experienced traders. It doesn’t just help you improve your trading results but also learn about the markets and crypto trading as a whole.
Whether you are a novice or have some experience in crypto trading, you can save time, reduce risks and gain confidence in your trading journey by adopting the practice of copy trading. Today we shall discuss the pros and cons of copy trading and how it can benefit new traders.
Copy trading – the basics
Copy trading is an approach that allows novice traders to copy trades placed by other experienced traders. It helps the new traders to simultaneously learn from their trading techniques and earn higher profits by imitating the strategies of a professional investor. As a result, you meet success when they succeed and fail when their trade goes south.
Traders with an excellent track record and large portfolios have lots of experience in the industry. Thus, if a person emulates their real-time strategies and applies the same to their own trade, he can earn significantly more. However, the concept of copying does not mean that you entirely depend on the other person; tweaking is required to devise your own strategies along the way. Copy trading is more like using the other person’s experienced investment pattern as a reference template to learn and avoid unwarranted risks.
Why should you go for copy trading?
Copy Trading has its inherent benefits, especially for newbies. Let’s look at some of its pros.
- Saves time: As a beginner, you can save a significant amount of time and effort by embracing copy trading. This way, you can omit the part where constant monitoring is required. You can easily focus on other urgent obligations such as a day job.
- Ideal for beginners: If you are new to crypto trading, copy trading can offer you simplicity and user-friendliness. Copy trading allows you to trade with limited knowledge of the crypto market. Moreover, you won’t be overwhelmed by advanced features and techniques to expand your portfolio steadily and consistently.
- Risk management: Copy trading eliminates emotional elements from trade and focuses on a less risky trading paradigm. Here setting risk parameters will allow traders to adjust their strategy depending on the maximum drawdown level and the trade’s volume for increasing gains and minimizing loss.
- Opportunity to diversify: Using copy trading platforms, you can achieve better exposure to various markets which otherwise would’ve remained unexplored. As a result, diversifying can be beneficial in times of low volatility, where your trading opportunities get limited.
Drawbacks of copy trading – why you shouldn’t
Here are some glaring cons of copy trading to keep in mind.
- Market conditions: In the crypto domain, the market is highly volatile. You may have control over your account and how much you wish to risk, but you have no control over the trades operated by the master trader. So, when market conditions turn, and the master trader struggles to manage the risks, your investment also becomes open to those risky elements. As a result, taking adequate risk-management measures is vital.
- Not learning enough: If your attitude is to earn profit by leveraging others’ skills and not employing your knowledge in the trade, the loss is imminent after a certain period. Copy trading is meant for gaining knowledge and experience from master traders. It is by no means a sure-shot scheme to get richer. When the market becomes highly unpredictable, you also become vulnerable to various risk elements. Thereby, gaining experience and skills is essential for surviving in difficult conditions where you are not dependent on others.
- Commissions: Some signal providers ask for a commission for copying their trades in the form of a subscription or performance fee. Consistently check for such fees to avoid paying more than you need to.
The bottom line
Every form of trading has inherent risks, and copy trading is no exception. Nonetheless, you possess total control over your account and can adjust risks accordingly to serve your trading requirements. It is not advisable to copy others blindly, but instead diligently modify your trading tactics. After all, your investment is your responsibility. So, learn as much as you can in the process of copy trading to achieve greater consistency in the future by reducing risk elements as much as possible.