Anyone can trade, even those who have little knowledge of trading. How? By copy trading!
What is awesome about copy trading is that you can earn on autopilot. Although it would be sounding too good to be true if all of this was without risk. While you don't necessarily need to be a professional in order to lift on others that do make profits, it does require some base knowledge on what to look out for, if you are looking to get into copy trading. This article will dive into this, so you can make an informed decision!
How does copy trading work?
Copy Trading has become a popular instrument since its first introduction into the crypto currency space on Bitget in 2017. Copy Trading revolves around the people-based portfolio phenomenon in which traders invest in other traders rather than perform trades themselves.
The basic principle is to copy all trades that a certain trader executes. If they win, you win. If they lose, you lose as well. The mechanisms behind copying trades however, is not as straightforward. Trades are made in a percentage-based manner because you only connect a part of your portfolio to a single trader, not necessarily all of it. On top of this there are also tools available to take control of your risks rather than laying them all in hands of the trader you copy.
This means, some time does need to be spent on learning how it works, before attempting to copy trade to avoid unnecessary drawdowns.
Criteria in choosing a trader to copy
The biggest difference in trading for yourself or letting someone else do it comes down to trust. You are trusting someone else with your funds. Therefore it is wise to know why you would trust them. Having insight in a few factors can help a great deal in deciding who to trust.
One of the biggest challenges of copy trading is choosing who to copy. There are many different traders on one platform, that all employ different strategies that make it so that many factors have to be considered.
To give a solid foundation we selected a few that we consider good to look out for.
Proven Track Record
Check out a trader's performance over an extended period of time. The longer the history, the better. Having a long trading history gives insight into someone's performance when the market is bullish or bearish.
A good trader to follow must show consistent results rather than sporadic results. A quick way to identify this is to look at the historical performance chart. If it's gradually increasing, then you could be looking at a fitting candidate to follow. If there are irregular spikes, check out someone else.
(slow and steady rise)
Follow someone who trades with a real account and risks their own money. They are likely to be less reckless with their trades if this is the case. This also indicates that they are confident enough to take risks.
By looking at someone's past trading volume, you can get a feel on what type of trader they are. If the trader remains consistent with their trading volume, it shows they have a solid strategy and stick to a strategy they know that works, even with the occasional drawdown. If there is a massive fluctuation in trading volume, it can indicate the trader is not confident in their strategy and might take on excessive risks.
(there is a massive increase in volume out of nowhere. This can indicate reckless behavior and requires further research.)
Copy trading is not without its risks, but you don't need to take on the high risk of losing your money if you can't afford to. More than anything, check out if stop levels are set on each trade opened and at which distance to determine risk levels.
Check out how confident the following is of the trader. Is the trader being followed by followers that have invested a decent chunk of money? That means the following is putting faith in the trader.
Copy Trading can be very lucrative. But as with anything, without risk there can not be a reward. Start small, and get comfortable with those you chose to follow, and slowly build up trust as you increase your investment in a person. In the end it is you who takes the risk, and not someone else.
The information provided above is not financial advice but for educational and entertainment purposes. Please do your own due diligence or consult a financial advisor before investing in any digital assets.
All opinions expressed on Bitget’s Soapbox (also known as the ‘Soapbox’) are opinions of individual traders using the Bitget platform, and do not reflect the opinions of Bitget or its affiliate companies and partners. The Soapbox author’s opinions are based upon information they confirm to be reliable, but neither Bitget nor its affiliates warrant its complete accuracy, and it should not be relied upon as such.