What is Cryptocurrency Copy Trading and Does It Generate Real Profits

Although the concept of copy trading appeared relatively recently, the idea of copying successful investors' trades has existed since the 1990s. At that time, traders dealt with currencies and various securities. If one of them seemed particularly promising to others, their strategy would be adopted. This was called mirror trading. Special trader communities were created to implement this concept. Later, specialized virtual rooms began to fulfill this function.

However, this type of trading differed from modern copy trading. It didn't involve exact copying of a particular investor's trades. Instead, it provided an opportunity to familiarize oneself with their trading strategy, so to speak, their thought process, and then independently decide which actions to replicate and which were better not to duplicate to avoid encountering significant risks.

In the 2000-2010 period, the copy trading concept began to form in the way we can discuss today. Moreover, the process became automated. Now, under the term copy trading, we understand the exact copying of another trader's trades. It operates in autonomous mode, meaning without direct participation from both parties. Of course, it's possible to replicate others' trades manually. However, this defeats the very idea of copy trading – the possibility of generating passive income.

In recent years, cryptocurrency trading has been rapidly gaining popularity. This is due to their high volatility, which, despite the risks, allows for decent profits even with small investments. Accordingly, cryptocurrency copy trading is becoming increasingly popular. We'll discuss why this is happening and what prospects can be obtained through its use below.

What is Copy Trading?

At first glance, the definition of copy trading seems simple and clear – an investor just needs to subscribe to a trader whose strategy seems suitable and promising, after which their trades will be automatically duplicated, generating profit. However, in reality, everything is somewhat more complex. Cryptocurrency trading involves considerable risks that not only beginners but also experienced market participants with many successful trades under their belt can encounter.

That's precisely why, when deciding to engage in copy trading, it's worth first studying its mechanism and features in detail, and only then proceeding to use it.

Let's examine the basic principles of copy trading:

• Traders whose trades are successful and demonstrate high profitability decide to provide access to them for duplication. In this case, all information about their trading should be open – copy trading platforms usually display their investment volumes, portfolio composition, number and types of concluded trades, profit growth percentage, as well as maximum loss per trade and other important parameters, optionally.
• Investors who are beginners and don't have sufficient trading experience, or simply wish to receive passive income, can familiarize themselves with the best traders on the copy trading platform and select the optimal option for themselves. This can be done directly on cryptocurrency exchanges if they provide such a service, or by using separate services and bots.
• After subscribing to a particular trader, the copy trading process begins. All their trades are duplicated on the subscriber's trading account. They automatically open and close, repeating the conditions the trader uses – for example, with designation of the same stop-loss. If the trade turns out to be successful, both the trader themselves and those users who are subscribed to them within the framework of copy trading receive profit.
• There's a possibility of copying trades from several traders simultaneously. This approach ensures diversification, which potentially increases the probability of obtaining profit and also provides an opportunity to test and study various strategies in crypto trading.

It's worth noting that copy trading conditions on different exchanges and services may vary. For instance, sometimes users are given the opportunity to independently choose a stop-loss that can protect them from losing a large sum. It's also worth paying attention to whether it's possible to independently close a trade before it's closed by the trader you're subscribed to. This is especially important for those who conduct long-term trading.

How to Choose a Trader for Cryptocurrency Copy Trading

It's also important to remind that proper selection of a trader for duplicating their trades is of particular importance when using copy trading. Here it's important to pay attention not only to the success of their trading and profitability but also to a number of other aspects. Among them, it's worth mentioning:

• Types of trades the trader concludes. These can be contracts with long-term earning prospects or short-term options. Additionally, shorts may be concluded, allowing earnings on cryptocurrency price drops. The user will need to determine which particular option will satisfy their requirements.
• Trading conditions that the trader uses in trades, namely – the level of leverage. Here it's important to familiarize oneself with what volume of credit funds they attract and whether this carries significant risks.
• Markets that the trader involves in trading. If a particular trading pair is unfamiliar to the user, they can choose one of two options – trust the more experienced and successful trader and also try to earn, or give preference to that investor who trades with more familiar currency pairs. In the first case, the risks will naturally be greater, as the user themselves won't be able to assess the real prospect of the trade.
• Account growth of the trader whose trades are being copied. If it's stable and no serious drawdowns are observed, then there's a high probability that similar results can be achieved within copy trading as well.

If all the indicated points are considered, then the probability of obtaining the desired profit will be higher. Additionally, the user minimizes the risks they may encounter when duplicating trades.

How Does Cryptocurrency Copy Trading Differ from Independent Trading?

The difference between the usual way of conducting trades and copy trading is obvious. However, it's still worth highlighting the features of each option. In the first case, the trader themselves takes responsibility for choosing the trade and its conditions. This means they'll need to analyze the market as a whole, as well as the chosen trading pair, determine the period for which the trade will be concluded, etc. At the same time, difficulties may arise if the investor is not familiar with a particular coin or market. That's precisely why beginners often fear choosing unfamiliar or new currency pairs for trading.

If the user chooses copy trading, they won't need to study current market trends, as the trader whose trades will be duplicated will do this instead. In this case, there's no need to spend much time mastering new markets, and one can focus on selecting successful managers.

Another difference is that the user doesn't need to spend a lot of time in front of a PC or smartphone screen to track price fluctuations. If some promising option appears on the market, an experienced trader will track it, and the trade itself will be duplicated automatically.

What Services Can Be Used for Cryptocurrency Copy Trading?

As mentioned above, copy trading services can be used both directly on cryptocurrency exchanges and through specialized third-party platforms. The latter option offers more flexibility, as it allows you to track offers and duplicate trades of selected traders simultaneously across multiple exchanges.

There are many such services available; however, not all of them are equally convenient and reliable. Therefore, it is important to choose trusted platforms by reviewing their track records, user feedback, and other relevant information in advance.

Some popular copy trading services today include:

• Coinmatics. This platform is publicly accessible, so logging in is hassle-free. It allows users to copy trades of experienced and verified traders by following their trading strategies. The system is user-friendly and suitable even for beginners. To get started, users connect their exchange account on the service’s website, review successful traders' results, select a preferred trader, and subscribe. After that, trades are copied automatically.
• WunderTrading. To use WunderTrading, you connect your exchange account and subscribe to a trader of your choice. Its key advantage is that all trading operations are conducted via API (Application Programming Interface), which ensures a high level of security for users.

These are just a few of the many services available for copy trading. You can discover more options through relevant rankings or by searching directly online.

Advantages of Cryptocurrency Copy Trading

One of the main advantages of copy trading is the possibility of generating passive income. It's enough for a person to subscribe to an experienced trader, and then they can potentially receive the same profit from trades without performing any independent actions. However, these aren't all the advantages one can count on. The following should also be mentioned:

• Copy trading opens access to proven, and therefore working, cryptocurrency trading strategies. Thanks to this, less experienced traders get the opportunity not only to receive profit from trades concluded in autonomous mode but also simultaneously improve their knowledge level in the field of crypto trading. As a result, strategies that seem interesting and profitable to the trader can be used for independent trading.
• The investor gets an opportunity to improve their trading skills. This concerns beginners in the cryptocurrency trading market. Without knowledge and experience, they risk losing a considerable sum. However, thanks to copy trading, beginning traders can study trading principles by tracking and analyzing automatically executed trades.
• There's a possibility of diversification. Usually, inexperienced traders conduct trades within a limited number of trading pairs. This reduces potential chances of obtaining decent profit. At the same time, it should be considered that often the greatest volatility is shown by little-known and new coins. With copy trading, additional pairs can be involved in trading, while there's no need to spend time on their detailed study and analysis. Also, in this case, there's no risk of losing money due to market ignorance.

Based on everything listed, it can be noted that copy trading really helps reduce the time and effort needed to assess and analyze the current market situation. Such an approach will be convenient and profitable for both beginners in the world of crypto trading and more experienced traders. The former can reduce risks, while the latter can multiply profits, as some of their trades will be concluded automatically.

Disadvantages and Possible Risks of Copying Cryptocurrency Trades

The main risk an investor may encounter when choosing copy trading lies in the very feature of the cryptocurrency market that was already mentioned above. Namely – this is the significant volatility of coins, due to which even when choosing popular currencies or stablecoins , one can lose a large sum by concluding an unsuccessful trade. Of course, many crypto traders speak about certain strategies that allow reducing such risk. However, even if it's lower, absolute guarantee that trading will be profitable cannot be provided. Accordingly, if a user duplicates someone's trade, they also risk losing invested funds. That's precisely why experts say that one should trade only with the amount a person would be ready to lose in case of failure.

It's important to note here that for beginners, copy trading is precisely one of the effective tools allowing risk minimization. Due to the fact that a person taking only their first steps in cryptocurrency trading cannot fully "feel" the market, duplicating trades protects them from first big losses. However, not 100%.

One shouldn't forget about another aspect – the risk of fraud. Unfortunately, this risk is present in practically every sphere related to finance. In this case, we're talking about the fact that fake websites offering copy trading services can be encountered on the internet. Some of them replicate the interface of official resources, thus luring clients. It's extremely difficult to recognize such deception immediately. Therefore, one shouldn't search for services or exchanges independently; it's better to trust reliable ratings and aggregators.

Regarding copy trading disadvantages, the following two aspects can be highlighted:

• the possibility of using in trading only those coins that the trader whose trades are being duplicated trades with;
• limitations in strategy selection – after duplicating a trade, it won't be possible to independently show initiative and make corrections.

However, these disadvantages will be less significant if the trader conducts trades not only within copy trading but also independently. This way, they can receive certain amounts passively and use their own approaches to cryptocurrency trading. In the end, they can even analyze which strategies turn out to be more effective and which don't bring the desired profit.

Choosing a Copy Trading Platform

General recommendations regarding how to choose a resource for copy trading, as well as the trader themselves for duplicating their trades, have already been outlined above. Therefore, it remains only to consider a number of cryptocurrency exchanges where this service can be used without involving third-party services. But it should be considered that copy trading specifics vary on different platforms. Therefore, it's important to first study all features in detail and only then choose the optimal option. Below is a brief description of copy trading services on the most popular exchanges.

These are far from all exchanges that offer copy trading services. However, precisely these should be considered the most reliable. But it should be remembered that even when choosing a proven platform, it's necessary to competently select a trader for copying their trades, as well as not risk a significant amount of funds.

Conclusion

In conclusion, it's worth noting, first of all, that copy trading is indeed a convenient and effective tool for generating passive income. However, it doesn't guarantee that invested funds will bring profit, as the cryptocurrency market is quite unstable. There are many risks, but at the same time, no fewer advantages are provided. The main thing to remember is that copy trading should be approached wisely. It should be considered that it's better to use only proven official services and exchanges. Under no circumstances should resources about which there's no information in ratings or reviews be used. It's also extremely important to competently select copy trading offers. All parameters need to be considered so that ultimately duplicated trades don't drain the user's entire trading budget.

And one more thing – copy trading shouldn't be left to run on autopilot. Although this is passive income, it should always remain controlled. When necessary, it's better to quickly unsubscribe from the chosen trader if the results of their trades don't meet expectations. After all, there are really enough offers on services and exchanges, and a more profitable option can always be found.