Copy trading is based on the principle of copying the strategies of a well-seasoned trader by beginner or other traders. In copy trading, every activity carried out by the experienced trader is duplicated by the user’s accounts.
Platforms that carry out copy trading are usually stock market and forex websites. Some of the prominent platforms include Darwinex, Zulu, and eToro. However, there are copy trading platforms for cryptocurrency.
Perks of Copy Trading
Minimal risk for beginner traders
Due to the reason that copy trading mimics the trading methods of highly regarded traders, beginner traders can minimize the risks that come with trading the cryptocurrency markets.
Easy to understand:
It can be difficult and time-intensive to learn the ups and downs of trading cryptocurrencies. Copy-trading enables faster learning for beginner traders, thereby making trading easier.
A product like copy trading that guarantees lesser risks in trading cryptocurrencies, is sure to receive wide adoption by beginner traders.
Beneficial for the experienced trader:
Importantly, copy trading provides benefits for experienced traders whose strategies are being copied. Commissions and fees are paid to the experienced trader as a form of compensation for agreeing to let their strategy get mimicked. It is also a way for the experienced trader to make additional profits daily.
Flaws of Copy Trading
Delay in order execution:
As a result of the speed at which the cryptocurrency market moves, a slight discrepancy between the time the experienced trader executes his/her trade and the time the beginner trader copies the trade could arise and this, in some cases, can cause losses for the beginner trader.
Exact platform requirement:
Another flaw of copy trading is that traders are required to use the exact platform as the experienced trader if they want to copy trade. This may cause traders to select an unfamiliar trading platform. However, this isn’t much of an issue for a lot of traders.
As more and more people become interested in trading digital assets, beginners must acquire an understanding of the trading space. However, a lot of interested users may not have the leeway to develop their trading abilities necessary for surviving the markets. These kind of people are who copy trading is highly recommended for.
Azeez Mustapha is an experienced author, trader, markets analyst, signals strategist, and funds-manager.