The concept of copy trading is nothing new, being first developed around 2005 as an offshoot of automated trading. However, it existed in a different form prior to this year as well, with traders communicating their intentions via newsletter and later through the means of trading rooms. Traders would announce the execution of a particular transaction, write it in a virtual room, and leave the followers to become familiar with and reproduce the transaction if they wanted to. While the concept in and of itself isn’t new, its introduction into the crypto ecosystem is still debated, and many wonder whether adopting this method is a good idea or not.
After all, the idea behind cryptocurrencies is that anyone can build their own portfolio and has the potential to create their own list of holdings however they see fit. Being in full control of your assets is something that only the blockchain can deliver and is a feature that many have been looking for. Opinions regarding the effectiveness of copy trading vary, with some believing that the process will allow you to do much better than your peers, while others consider it to be unsustainable in the long run. However, there’s no denying the benefits of this technique for a specific demographic: the beginners.
Learning Experience
Crypto marketplaces are known for their volatility and fluctuations, with the prices changing significantly in as little as a couple of hours. Depending on the investors themselves, some consider this characteristic to make the environment far too risky, with the probability for losses being much higher than that for gains, while others believe that the volatility has the potential to bring very substantial gains and even help with wealth accumulation. However, for that to work, the investors must be well-accustomed to the intricacies of the environment and how it operates.
Crypto requires a lot more research and insights than its peers, and you must be committed to learning about the ecosystem if you want to succeed. However, going through every single piece of information you should be aware of is no easy task, and you most likely won’t be able to do it right away. Delaying your market entrance until the moment when you have acquired all this knowledge will cause you to miss opportunities. On top of that, you must also recognize the importance of practical learning. You can figure out quite a lot about the market just by looking at what choices veteran traders are making.
In this sense, copy trading isn’t just about replicating the strategies others have come up with and joining in on their success but also about educating yourself on what the market entails. You will get the opportunity to gain invaluable insights into investment knowledge, trading strategies, the way to predict market trends, and how to remain disciplined no matter how the market changes.
Taking The Edge Off The Complexity
There’s no denying the complexity of the crypto marketplace, and with an ever-growing number of traders expected to join the market, the need for and demand for tools will increase as well. Some crypto exchanges have decided to appeal to newbies by introducing a “one-click copy trade” service that lets newcomers draw inspiration from the ventures of those who are far more experienced than them. Millions of traders from across the globe use similar services in order to power their transactions and boost their odds of success.
The idea behind these systems is to make trading less intimidating and to empower newcomers even if they don’t have a full grasp of the trading ecosystem. Make sure to identify the investors that have proven performance rates over the long term since anyone can strike gold from time to time. However, being unable to maintain the gains or work towards building a sustainable list of assets is typically a red flag. Remember that your portfolio will also be just as successful (or unsuccessful) as that of the trader whose example you’re following.
Higher-Level Strategies
Copy trading features can also be used to diversify portfolios. Exploring different avenues and tokens will make your portfolio more robust. As the old adage goes, you should never put all your eggs in one basket. Having an overwhelming majority of your portfolio made up of a single crypto can cause a lot of trouble if the asset fails or suffers depreciation since you will also lose significant amounts of capital. While recovery is definitely possible, especially in an environment such as crypto, which is constantly changing and evolving, it might take a while until this happens, and watching a hefty sum essentially go down the drain can be unnerving and even put you off trading for good.
Even if you have a moderate degree of experience in the world of crypto trading, keeping up with all the coins can be pretty challenging. You’ll have to deal with different time frames and basically be forced to pay attention to your portfolio non-stop. This isn’t just draining but can also cause you to become less objective over time and end up making mistakes such as over-trading or falling victim to the fear of missing out. Copy trading can help in this regard, as you’ll only need to focus on a few assets and copy the others. Make sure that the investors whose strategies you choose have shown themselves to be proficient when dealing with the coins in question.
The Bottom Line
Copy trading doesn’t mean you’re at the whims of someone else, as you will have the ability to choose. Look for someone who fits your activity level (there are many who trade less frequently, for example) and financial goals. If you want to focus on a long-term approach, don’t copy the ventures of an intraday trader.
Tech developments have made it much easier to have a positive experience in the crypto world so that even those who aren’t entirely familiar with the concepts can build sturdy portfolios for themselves. As a tool, copy trading helps not only individual investors but also the crypto market, contributing to its stability and making it more mature.
