What is Copy Trading?

22 Nov 2023 by Harry Newman 3 min read

What is copy trading you might ask yourself?

In an ever-evolving market, copy-trading cryptocurrencies have become a way for investors to essentially copy other traders.

This method is done within traditional finance as well as cryptocurrencies.

What is Copy Trading

Copy trading is an investment strategy that allows an individual to automatically copy trades that are put on by another trader.

You can look at copy trading as literally just copying someone's homework.

Copy trading is a great way for less experienced traders to copy a trader who is a more seasoned and skilled investor.

Investors do not need to understand much about trading to know what is copy trading, when copying a trade it is done automatically, and the person you are copying effectively runs your account.

Deciding when to open a trade and when to close a trade.

On exchanges such as Bybit and Bitget they will also have guides on ‘what is copy trading’. Users choose from a range of different traders to copy trade, this could be traders who are low risk, using low leverage and only trading well-known cryptocurrencies such as Bitcoin and Ethereum.

Or traders who are high-risk, trading with high leverage and speculating more on lesser-known cryptocurrencies.

Usually, there will be a minimum investment amount to start copy trading, this could be anywhere from £50+.

The process of starting a copy trade is quite simple, exchanges that offer the service will have the option listed and all you have to do is click on that option and load up your account with funds.

Pros and Cons of Copy Trading

Pros

Understanding what is copy trading and how it works is not something novice traders have to be concerned about, without the need to deeply understand the markets or advanced strategies, copy trading is an ideal strategy for new traders.
You are not limited to copying one trader, copying multiple traders allows investors to diversify their portfolios, potentially reducing risk.
Copy trading offers a unique learning experience for traders, as you can observe the other traders' decisions
Copy trading saves time for traders, as everything is completed automatically there is no need to constantly monitor the markers or make decisions.

Cons

Much like any investment, copy trading involves its risks, even successful traders have losing days, following successful traders does not guarantee a profit, and there is still potential for loss.
An over-reliance on another trader can reduce the development of personal trading skills.
The copy trader takes a portion of each profit, this is only a small percentage, but this can add up over time resulting in lost earnings.
Copy trading gives the user no control over the types of trades or decisions being made, there is a reliance on the trader to make trades when they see fit.