Business
Should Novice Crypto Investors Try Copy Trading?
Most of you have probably heard of copy trading and one of the most talked-about trading strategies in the crypto market. And you might be wondering what the big deal about it is. This article will cover copy trading, how it works, things to look out for, and more. Follow till the end to have a better insight about copy trading.
What is copy trading?
Copy trading is nothing but a trader copies a trade made by another trader. Crypto copy trading is a popular trading strategy that not only makes the trading process easy but also helps reduce the market’s learning curve.
For those new to the trading world, copy trading is a wise choice as it considerably reduces the chances of overleveraging their accounts. Copy-trading assists novice trades in making the highest possible profits without conducting complex market research.
Not only novice traders but experienced traders who don’t have sufficient time to monitor or analyze the market changes can also opt for copy trading.
How does copy trading work?
As its name suggests, copy trading mimics the trade executed by some other traders. It is purely external money management, nothing more or nothing less. Though the principle stays the same, the function method could vary greatly with the platform engaged.
The first step of copy trading is to recognize the right platform that fits in well with all your needs. Once that is done, choose a trader from who you are willing to copy.
Generally, these traders will be the ones with the same trading behavior as yours and match your trading goals. One important factor that many novice traders are unaware of is that the traders you can copy from don’t limit to one. Instead, you can choose multiple traders with different trading strategies.
The next step is to decide the amount you want to invest in. if you are planning to copy from multiple traders, you need to proceed accordingly.
You can divide your share equally with the traders. After assessing the potential risk factors and profitability, you can also distribute your investment to the traders.
The most significant feature of copy trading is that you are given the control of trading mode, i.e., you can decide when to automate and when not to. The extent of automation can also be customized on almost every platform.
Crypto trading bots are the extensively used tool for completely automated trading systems. These bots have certain pre-set rules, and they act accordingly and help you make profits.
Despite the level of automation, you have the power to monitor every open position in real-time. One major reason for attracting more people to copy trading is the transparency offered by reputable trading platforms.
How to select the best trader to copy trading?
Choosing the right trader is the only difficulty that will come across in copy trading. To help you narrow down your selection, here are some important criteria that will help you land the right trader.
- Experience
- Investment strategy
- The number of followers
- Communication
Advantages of copy trading
- One significant benefit is that copy trading is ideal for beginners because it has minimal complications.
- It is a great source of passive income.
- For those in the learning phase, copy trading is a great tutor in making you understand the market behavior.
- Traders get more free time to focus on daily activities rather than being completely immersed in trading alone.
Risks associated with copy trading
- No trading strategy is 100% profitable; even the most experienced traders sometimes lose. This means that everyone will lose money at some point.
- It takes time and effort to choose the right trader to copy from
- copy trading is not free; you need to pay a certain amount as charge fees if you wish to follow them.
The bottom line
So far, everything indicates that copy trading is the right choice for beginner traders. The risk factors are minimal, and you can make great profits with proper guidance and experience. But at the end of the day, it all depends on you as you need to have a firm hold on how copy trading works.
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