Many new crypto investors need help determining where to begin and how to select the right assets for investment. With copy trading, you can simply mirror the trades of experienced traders without dedicating hours to research for each trade. This guide will show you how to take advantage of copy trading and replicate the strategies of experienced traders in 2024.
KEY TAKEAWAYS
➤ Copy trading allows new investors to replicate professional traders’ strategies without extensive market knowledge.
➤ With copy trading, investors can adjust capital allocation and risk management when mirroring trades of experienced investors.
➤ Copy trading offers a passive investment approach but still involves risks that require careful consideration.
How to copy trade
Disclaimer: This article is not financial advice. With any form of trading, your capital is subject to risk.
In short, users looking to copy trade must:
- Sign up to a platform that supports copy trading and complete any KYC requirements.
- Find the copy trading function and search for traders you want to copy.
- Select a trader to apply their trading strategy.
- Enable the function and confirm.
Now let’s take a closer look. Below is a step-by-step guide to copy trading in cryptocurrency. While this example uses eToro, similar features are available on many popular platforms. Although the exact steps may differ slightly, the overall process is consistent across most leading platforms.
Step 1. Search for traders available for copy trading
You may filter traders based on their location, the markets they invest in (forex, crypto, commodities, stocks, indices, or ETFs), their profit margin from the last month (and up to two years), and other factors. eToro USA LLC does not offer CFDs or real crypto assets available.
This is what that search function for people looks like on eToro.
Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.Past Performance is not an indication of future results
Step 2. Select one trader to apply the copy trading strategy
After filtering and selecting the trader that focuses on your preferred assets, you may check out more detailed stats on their profile. You may see how many are already following and copying their positions.
Step 3. Enable “copy trading”
After deciding on the trader you want to copy, click the “Copy” button. You will have to set the details for the traders before the platform can start copy trading.
After you have set the amount to invest and the setting for closing the investment (Stop Loss), click on “Invest.”
After starting your investment, you will have the same traders in your portfolio as the trader you just copied.
Step 4. Close the investments at any time
You will now see that you are copying this trader. On their page, you will see all the details of your copy investment. You’ll find the same information on your portfolio page.
You can close this investment and stop copying their traders at any time. While there is no need to keep an eye on your copy investment because the trader you are copying is already doing that, you may choose to stop copying their investments.
To do so, you have to go to your portfolio, find that trader that you want to stop copying, and on their page, go to settings and select “Stop Copying.”
What is copy trading?
Copy trading is a specific type of trading that involves replicating the trades made by other traders.
Trading platforms offering this popular feature generally allow you access to vital statistics about each trader. These stats may include their profit/loss ratio over the past year and their investment strategy, among other details.
When a trader you follow makes a trade, that same trade is executed in your account by the platform. Better still, you have the flexibility to determine how much of your capital to allocate to these trades, and you can set limits on the total risk per trade.
For instance, if a trader you follow allocates 5% of their account to buy gold, the same trade will be mirrored in your account. If you prefer less risk, you can adjust the risk level on your end.
Once you begin using a copy trading platform, you’ll have access to a wide range of filters to help you find traders who match your preferred trading style and risk tolerance.
How does copy trading work?
Replicating trades works across a variety of financial markets, including cryptocurrency, Forex, stocks, commodities, metals, and more. Many investors who engage in copy trading are focused on following successful traders rather than focusing on the specific markets themselves.
That said, it’s possible to follow traders who concentrate on particular markets like cryptocurrency.
Since cryptocurrency is a relatively new and highly volatile market, it can be beneficial to follow a professional trader with more expertise. If you lack the technical skills or market knowledge required to trade cryptocurrency, copying the trades of an experienced investor can be an effective way to participate in this market.
Copy trading can boost crypto portfolios
Copy trading is one of the best ways to automate your investment strategy. This eliminates the guesswork and the lack of experience that’s needed when choosing how to invest your hard-earned money.
Of course, the strategy might not be the best strategy for all investors, but these systems have worked for many retail investors.
Before investing, we recommend thoroughly researching the associated risks with cryptocurrency investment. Note that some of these experienced traders are using complicated derivatives instruments, which may bring high rewards, but they also expose you to greater financial risks. Talk to your financial advisor to discuss the pros and cons of copy trading.
Before engaging in any type of financial investment, you should clearly define your financial goals. And never invest more than you can afford to lose.
What are the benefits of copy trading?
The main advantage of using copy trading is that it allows you to take advantage of another person’s investment experience and knowledge. Without having someone guide you and give you trading tips, you would have to spend hours analyzing and deciding which stocks you should buy or sell. You would have to become an expert at fundamental and technical analysis and follow the market trends and price movements.
But all that effort is not needed with copy trading. Furthermore, you can start this type of trading without having prior experience. You need to follow a professional investor on a platform.
You are free to choose the professional traders to follow. Using the feature, if you find a trader that has consistently generated high returns, you could theoretically copy their strategy to achieve the same results.
Even new investors can use copy trading because it is a passive system. This means that you can leave the difficult work of selecting investments to others. Earning returns on your portfolio is possible without spending hours researching the market. Since the professional trader directs investment decisions, diversification and risk management can also be done.
What criteria is important?
When selecting an investor to follow, it’s important to evaluate their track record for consistent success over time. Key factors to consider include their trading experience, investment success rate, the number of open positions, average holding time for investments, and their preferred investment instruments, such as crypto or stocks. This assessment helps determine if their style aligns with your interests and risk tolerance.
As a new investor, you should decide on your goal. For instance, you might replicate the trades of someone more interested in hedge funds, commodities, etc. But an index strategy might be more appropriate if your goal is to beat the market.
Disclaimer: Copy trading carries risk. Even if you copy a generally successful trader, you may still lose money. Do your own research and never invest more than you can afford to lose.
Frequently asked questions
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