Entering financial markets such as the crypto market entails inevitable risk. If we are to attribute only one characteristic to financial markets, it would certainly be unpredictability. Losses are unavoidable in such an arena, but is there a way to minimize the losses? The people who make profits in the market, how do they manage their operations? The answer to these questions is the punchline of the phrase “Copy Trading”.
What is Copy Trading?
Copy trading is a simple trick of following a professional trader and copying every decision they make in the market. So for example, if the main trader sells his/her Bitcoin at a given price, the copycat does the same. This, of course, is only possible in exchanges where the transaction history and the trader’s trading strategy are accessible.
If a trader decides to go with the copy trading strategy, they can select a platform that supports copy trading and allocate a portion of their account balances towards the investor(s) that they want to copy from. Consequently, every action made by the main trader will be repeated automatically in the portfolio of the copied trader. Copy trading is a popular approach in all financial markets, including the cryptocurrency market.
Why Copy Trading?
Most individuals who start trading in the crypto market and want to buy Bitcoin, Ethereum, Tether, Litecoin, or any other cryptocurrency, do not have a firm understanding of the market movements. The sheer dedication and time required for becoming a weathered trader are tremendous and copy trading could be the starting point. Let’s review some of the potential benefits of copy trading:
No matter what security or cryptocurrency, trading always entails inevitable risk. The risk, however, is much higher for a beginner compared to a professional trader. So many people quit the game after a few losses. Copy trading based on the deals made by a more skilled trader reduces the risk.
Copy Trading: a short-term boot camp
You can learn a lot from a professional trader by copy trading. You can familiarize yourself with different trading strategies and learn how your prerequisite knowledge about trade strategies can be applied in the real markets.
More money for the big guys
Exchanges that allow copy trading also pay a small reward for traders who allow others to copy their strategies. This is an interesting incentive for professional traders to join those exchanges and the whales that other fish follow to success!
Whales can also drown
Individuals or entities that hold large amounts of cryptocurrency and can significantly affect the market’s atmosphere are called whales. But even whales can make mistakes and drag down every copycat with them! We warned you before that risk is the unavoidable part of investment and professional traders are not excluded. So you should not expect a constant stream of wins when copy trading.
If you are new to financial markets and don’t have a solid thought-out trading strategy, copy trading could be a decent starting point for you. Considering the inescapable risks associated with investing in financial markets like the crypto market, you can upskill your trading knowledge by engaging in copy trading and learning from the best traders in the market. In the meantime, you can learn technical analysis in CryptoDesk and familiarize yourself with the fundamentals of the crypto market before crafting your own trading strategy.