The idea of speculation is on the rise. It has been growing since the 1920’s and has evolved and become an entirely different animal over the course of a century. The lure of quick profits for little effort has roused the interest of many people across one hundred years. But where there is the want of quick sums of money there is chances for gradual or immediate losses.
Thankfully, the financial services industry has come up with a wide variety of tools and solutions for people to participate in the growth of the market without having massive risks like in the past.
Today, tools such as copy trading help users to speculate and minimize their potential chances of loss if they have the right data and inputs. Copy trading is one specific tool that looks like it is making an impact on novice and pro traders alike. They can learn from others and quite likely do better in their respective speculation journeys.
Of course, it is important to note here that life is not easy and copy trading has its benefits and disadvantages. If one can use the process and tool with the right mindset, they can probably learn and have a better chance of gaining more value over the course of their investing career.
Let’s take a look at some of the aspects taking place within the world of copy trading today.
What is Copy Trading in Cryptocurrency
The first question is what is copy trading and why does it matter? The simple answer is that it is a tool or a process whereby a speculator can copy someone else’s trades by default. This makes the life of the copycat easy. They do not have to spend countless hours and time doing their due diligence and try to figure out the market by themselves.
These professionals can go forth with great confidence and copy from those that they believe are doing the leg work, the proper research, and making decisions in the right manner. The idea here is to act like the experts know more than you do and to follow their lead in a very literal manner. One is able to then match the returns of those that have more knowledge, experience, and skills in the field of speculation.
A novice is likely to turn to this application so that they can start putting their money to work without any initial large learning curves whatsoever. One chooses from a pool of experts who (should have a compelling track record) and will emulate their trading action.
It works as such:
- The user signs on to a platform that has this feature
- They select a professional/pattern to copy their movements
- Their trading action will now resemble that of the expert
- The new user will notice similar returns
For example, you get started on a platform that has this feature and then you follow someone’s trades. The professional purchases 1,000 shares of a particular digital asset. If you are doing it automatically, you may mirror the exact trade (if you have the capital) and divest it when they do so as well.
Copy trading in cryptocurrency then is the idea that one should apply this same tool and process in the field of crypto.
One can benefit from this tool if they were to make sure to choose one professional that is more in line with their goals, strategies, and investment themes. This is one critical component to remember in this process. One must make sure to understand how they are approaching the world of trading and choose accordingly.
For instance, if one were to seek conservative and steady gains then emulate one who is following that strategy. If one is searching for those who have a more feverish and frantic high yield outlook, then choose them.
One can choose to implement copy trading by following signals and then implementing them. But taking that approach is tedious. One may then try to join an entity that offers as an automatic feature. That’s the best part, in most cases, is that once you make your decision, the rest happens in an automatic fashion.
Another essential component is that of the right funds to execute strategies quite well.
What Are the Benefits of Copy Trading Cryptocurrency?
The concept brings in the concept of leverage into the equation without the use of debt. What’s better than that? Aspiring speculators can form more value without having to worry about making huge mistakes. The value here is that they can focus on acting now instead of having to take time and learn. They can turn to the wisdom of those who have gone on before them and made great gains in the past and use them to their advantage.
Follow the Lead
The beauty is that these professionals have been learning and practicing their knowledge for quite a bit of time. They have made many mistakes and have learned how they should act to minimize losses while opting for great gains. These experts are not perfect but they know that they can strive to become better each day by acting and enthusiastically learning.
If a beginner trader tries to achieve the same results as the professional, they may not earn as much. Further, they may risk their initial capital and not recover from their harrowing experiences.
No Need For Steep Analysis
Following the lead of professionals makes it to where one can sit back, sip on some fresh lemonade and focus on other activities. A novice trader can opt to have the automatic copy trades and check performance at the end of a specific period to alter investing.
The only analysis one needs here is to judge the performance of the lead speculator. One does not need to analyze coins from a technical or fundamental standpoint. This lack of analysis helps to save time and takes away mental stress and anguish.
Passive Opportunities
A large portion of investors and many individuals are searching for ways to earn money without lifting a finger. Many wonder how they can do so and turn to all sorts of schemes to achieve this dream. One way is certainly through the tried and true medium of copy trades in cryptocurrency. One can set it and forget it, allowing them to earn if the origin strategy is correct.
That sounds pretty amazing! Emulate the right person and you could increase your money steadily throughout the year and have something to look forward to by the end of the year. The idea here is that you don’t have to do the hard work of choosing the right trades, setting it up and executing it. Someone else is doing it and you replicate it for your advantage.
You trust that someone else is a better manager than you because of their past performance and intellect. Everything is taken care of from a risk management and other standpoint while you passively add more funds from your earned income or other sources of capital generation.
Choosing the Right Candidate
When looking at this from a passive investing perspective one must look at how they will select the one that will help take a hands off approach. The factors one must look for is longevity of trades and success of previous trades. Further, one must pay close attention to the various holdings and the quantity of holdings in a portfolio. Finally, a critical factor is the duration of the investment and time to divestment.
What Are the Disadvantages?
The truth is that not everything is peachy keen in the real world and it is so in the digital trading realm as well. Emulation speculation is not one that will work well for everyone involved in the picture due to myriad reasons.
The reasons are present below.
- Outsourced investing requires competence from the third party. You may follow a smart algorithm or real person. But you must understand that both can be wrong at times and can make large blunders even if they have great trades in the past. These people or machines are not fortune tellers but good at crunching probabilities and investing accordingly. They can make errors and be prone to folly. Therefore, it is not a fool proof strategy.
- Risk is present in speculation. That is the cold hard truth. Everyone takes on a certain bit of risk to amass gains. Again, it is not bulletproof to copy others, but it might decrease overall.
- The idea here is to invest in the right individual and invest work upfront with a compelling criteria. The wrong choice can create grievance.
- Think about costs that occur due to transactions. The more trades you create, the more you must pay to the brokerage. Account for frequency of execution and the potential costs involved to the potential gain. Remember that transaction costs include taxes as well.
How Do You Implement Copy Trading ?
You can do so by going to a platform that has this feature. Different digital products carry this feature and you can switch it on. These products will ask you to connect to Binance or other place of your choosing. They will ask you to choose your speculator and allocate funds and the tool will match it in a proportional manner.
Things to Know Before Crypto Replication Strategy Implementation
A trader is not infallible and one would do well to understand this strategy and act accordingly in their daily decision making process. One must have a proper understanding of the overall timeframe of the trades. Investigate the risks involved in prior trades and if the history accounts for risk in each trade or choice. Remember that trades may go in the opposite direction and understanding that opportunity or liability is necessary.
Protect against this by inputting stop loss settings. Again, understand the level of magnitude in which the trader deals from the number of coins to the size of each acquisition. How does the trader take profits? Are they setting specific price targets, are they looking at beaten down coins or something else?
Always understand the risk to the reward in these scenarios and you can come out ahead.
Remember that trading might seem like it is magic and that only a few people have the midas touch in this process. There is no one strategy that works well, only select sophisticated companies (like the one Jim Simmons is from) have figured out some formulas that work regularly.
Focus on learning from others, have your criteria and investing philosophy if you have the time to do so. Many might love to speculate and figure out the markets for themselves. If you are one of these that love to do so then you will love to learn from your actions. If they are right, you will profit, if they are wrong, you will go and course correct. Either way, you win if you are of this sort.
Whether you decide to take action or take the other strategy, you should always take notes, measure results, and figure out how to improve them even in the copy mode.
What sources can you learn from even if you are investing in the emerging crypto markets? Experts recommend ‘‘Market Wizards” by Jack D. Schwager, “Reminiscences of a Stock Operator” by Edwin Lefevre, “When Genius Failed” by Roger Lowenstein and “Trader” on Paul Tudor Jones.
This brings us to the next point, you can mirror themes too.
Crypto Copy or Mirror? It Is Up To You
There are those who like the idea of sourcing investment ideas from others without duplicating every single move. These people are more interested in understanding the ideology and philosophy instead of mere exact replication of movement.
Mirroring is for you if you would like to understand the philosophy and mindset of the investor and follow similar themes while making your trades. Remember that mirroring requires more work and understanding throughout the entire process.
For instance, say that you are a fan of Bill Ackman and appreciate his career and success. You might study his previous actions and his current actions before making your decisions using his same criteria but might not make the same decisions as him in the present or in the future.
What do you want to do? What are you comfortable with doing now? Go with that option that will make you feel safe and improve your lifestyle.