Copy trading is often confused with social trading, but they differ largely from each other.
In social trading, traders share their trading strategy and price predictions on an online platform. From there, other traders, mostly those who lack enough experience in the trading, pick those strategies and act according to them on their own.
However, copy trading automates this whole process. Conventionally, in a copy trading platform, users have access to expert traders trading history and strategies. Upon finding a trader reliable, a user can link a portion of his funds to that trader’s account.
Any position that the expert trader takes thenceforth is copied to the copying trader’s account, too. The amount that gets invested in the copied trade depends upon two things: the amount put at stake by the copying trader, and the allowed percentage of that amount that can be invested in one trade, as specified in the platform’s policy.
Such platforms are widely used these days in stocks and forex markets. Some of the most well-known platforms include Zulu Trade, eToro, and Darwinex. The latest data suggests that Zulu Trade executes a trade of over $800 billion every year.
But when we talk about copy trading in the cryptocurrency industry, it still has to gain grounds.
Why Copy Trading Platforms Matter for the Crypto Industry?
The hype around investing in different financial instruments is at its peak, be it stocks, forex, or cryptocurrencies. Of all, the newest concept is that of cryptocurrencies.
And despite the excitement around this, a vast majority of the population still chose stocks and forex over cryptocurrencies due to the risk posed by highly volatile prices, which indeed is a grave concern. This crops out the adoption that cryptocurrencies could otherwise gain.
“According to the latest statistics, only 1% of all users on cryptocurrency exchanges are engaged in active trading. Rest 99% open accounts buy some kind of cryptocurrency and do not do anything with it as they lack the skills to trade,” told Ilnar Fattakhov, the founder and CEO of CoinSharks.io, an upcoming copy trading platform, in one of our recent discussions.
Another problem, he noted, was the small size of the cryptocurrency market, which made it subject to manipulation by the large players. This renders technical analyses least reliable at times. New traders, who often don’t follow a risk management system, are always at the risk of losing their money to such diversions in the market.
But, as we all know, there are also those traders who have tremendous experience trading cryptocurrencies, and they understand the market well enough to manage their losses and end up in profits.
This creates a huge demand for such platforms that could offer expert trading services to the otherwise dormant cryptocurrency holders. And it would be as simple as just pressing a few buttons on the screen, Fattakhov noted.
Benefits of a Copy Trading Platform
1. Reduced risk for new traders
As we already discussed, risks associated with high volatility causes the major resistance for investors. But when we replace the conventional trading system, where we trust our own skills and abilities to take trades, by the one where an expert with a proven track record makes all decisions for us, things move to the brighter end.
Explaining the same, Fattakhov said:
Many have lost considerable sums of money trying to trade on their own due to the lack of understanding of trading skills such as technical analysis, fundamental analysis, and risk management. Therefore, dividing one's funds into several parts and giving their control to several traders using a copy trading platform ensures success and profit.
Those copying trades on the platform are also free to change expert traders if they find them non-profitable.
2. Less hassle, more profit, easy learning
Trading isn’t an easy task.
“It takes a lot of time to plan trades and execute them. And not everyone can take time out of their busy schedules to trade cryptocurrencies, let alone the time to learn to trade,” said Fattakhov.
But that doesn’t have to mean that they cannot make profits through cryptocurrency trades. With copy trading platforms new traders can now bunk the hassle that is trading and safely test the water of cryptocurrency investing. All they would require is to allocate an amount to be traded along with an expert trader’s trade and let the platform do the rest.
Also, those traders willing to learn and go for the bigger hits can observe the traders they copy and learn through a more practical approach.
3. Wider adoption of cryptocurrencies
Reduced risk and ease of earning benefits directly correlates to wider adoption.
In 2017, when Bitcoin shot to the moon, it was common for people involved with cryptocurrencies to be warned by their friends and families to be aware of the risks involved with it. But anyway, those who wanted to make profits and knew how to do it, made tremendous amounts of it.
Now that people are aware that profit can be made with cryptos, no matter how their prices fluctuate, it would be easy to suppress that fear. Copy trading platforms just add to the ease with which this can be done.
Trading experts equals trust. And when people are allowed to trade with the strategies of those who know how to make money, there are more chances that they would join the cryptocurrency bandwagon.
4. Benefits for Experts
As is the case for most copy trading platforms, expert traders who allow other traders to copy their trade earn a small commission for doing so. The more credibility traders create for their strategies, the more people will copy their trade. This will allow them to earn extra profits by doing what they do daily.
Problems with Existing Copy Trading Platforms and their Solutions
Copy trading platforms have started making it to the market. But as we know, in the initial days of any solution, it isn’t perfect. There’s always so much that could be done to improve the services.
One such thing to improve in cryptocurrency copy trading platforms is the time lag between the execution of the orders. In a market as volatile as that of cryptocurrency, a short delay could cause a huge loss. This means that the trade for the investors (the ones copying the trades) should be taken in a very short span, if not instantly, after the expert trader finalizes the trade. But this feature currently lacks in the existing copy trading platforms.
Contributing his part to the same, Fattakhov explained that most platforms today only allow investors and the expert traders to be a part of the copy trading ecosystem if they are both on the company’s own trading terminal. However, this reduces the interest of expert traders to be a part of the ecosystem as they’re already used to their favorite exchanges, and switching from it would be inconvenient for them.
Indeed, it can be a huge setback for anyone if they’re required to switch trading terminals for the sake of allowing their trades to be copied by other traders.
This, coupled with all the above-explained requirements and problems, was his inspiration to create CoinSharks. He wanted investors and traders to stay on the exchange platform of their choice, and yet be able to participate in copy trading, Fattakhov stated.
The only requirement would be for both traders and investors to connect their accounts to their platform.
“They can manage their account as they did before, and there is no need to somehow interact with our platform,” he highlighted.
Another copy trading platform that has come up recently is Coinmatics. Similar to the stock and cryptocurrency copy trading platforms we discussed above, CoinMatics helps people earn through cryptocurrency trading by putting their funds on autopilot and letting experts take care of the trading.
Users on the platform can either copy all the trades of a trader or simply choose their trading strategies and copy them to execute their own trades.
In addition, CoinMatics also allows investors to spread their risks across various traders and customize the risk they want to take for each trade.
Conclusion
As has already been seen in the case of forex and stock markets, there are a large number of people ready to use copy trading platforms, be it for the lack of time or skills or experience. And considering the increasing interest of people in crypto assets, and their inability to quickly and easily get the hang of the market, a reliable and user-friendly copy trading platform in this sphere can go a long way.
What are your thoughts about copy trading platforms for cryptocurrencies, or in general? Let us know in the comments below