What opportunities are offered to investors by copying strategies of professionals and what are the risks to be faced with.
More and more people start to trade digital assets on exchanges and many of them lose their funds because of inability to analyze the market or wrong decision.
Like any time-tested tool, copytrading has come to be used in cryptocurrency trading to minimize losses.
Copytrading has been known in traditional markets for more than a decade. It is an automatic or manual copying of trades of traders who have great experience and positive trading history.
Copying schemes differ from platform to platform but the principle is the same: an investor indirectly entrusts the capital management to another person. The amount of income depends on whose trades are copied and how much money is invested.
Copytrading can be used by those who have no skills in technical analysis or who have no time to monitor the market. However, such trading allows not only getting passive income, but also implies some risks: nobody guarantees that trades will break-even.
The concept of copy trading came to the cryptocurrency sector from the classic financial market, where the very possibility to “mirror” trades of experienced traders appeared back in 2000, said a representative of exmo.me cryptocurrency exchange.
According to the expert, today cryptocurrency copy trading platforms work as follows: an investor registers an account on the platform and connects it to a trading account on a cryptocurrency exchange via API keys. Then he chooses a trader (strategy), connects to him, adjusts the parameters of copy trades and monitors the result. Sometimes the exchanges themselves provide a copy-trading service.
Such things are popular in forex, as instruments there are not so volatile (of course, if not take a leverage of x100 and above), and, as a rule, there is no steady long-term trend, confessed Chen Limin, financial director and head of trading operations of ICB Fund.
He said that the stock market has more demand for help in choosing promising stocks and building a portfolio than for any active speculation. The expert believes that in this respect, cryptocurrencies resemble stocks: there is a cyclical nature of the market and steady growth in the value of major representatives.
“People who just buy top coins on drawdowns have a much better chance of making money,” Limin argues.
Often, copying a strategy completely fails to meet expectations because successful traders can also make mistakes, the exmo.me spokesman warned.
He also explained that the amount of income in turn depends on the amount invested: not every investor will dare to trust a stranger with a large sum, keeping in mind all the costs and risks.
The expert also noted that if you decide to try copytrading, you need to be careful in choosing both the trading platform and the professional you follow.
“Remember that it is simply not profitable to reveal your successful trading strategies for free, so often quality services are quite expensive,” concluded the representative of the crypto-exchange.
Copytrading is something like the infamous PAMM accounts: an investor relies on an essentially unknown person called a trader, said Chen Limin, CFO and head of trading operations at ICB Fund.
He adds that it is possible to read a trading history, which will be presented as dry numbers and nice charts, but it is not always possible to verify the authenticity of the data. The mere fact that profits were made in the past cannot be the basis for similar figures in the future, the expert warned.
Is it possible to understand the market with the help of copy trading
The idea of copy trading is a great one because it helps beginners to understand the basic patterns and basic things in trading, the representative of the cryptocurrency exchange exmo.me is sure.
He specified that the beginner can see, for example, what should be the ratio of risk and profit, the correct entry and exit points to the market.
The financial director of ICB Fund did not agree with the expert. He thinks that very few traders are ready to share their trading strategy, so there is no sense in blind copying of somebody’s trades.
Chen Limin says that you can open the history of transactions and try to guess why this or that action was taken, but there may be many reasons: quotes approached a certain level of Fibo, Elliott waves or a tricky moving average, or maybe it is important news or arbitrage.
The specialist believes that beginning investors should start with investing – forming a portfolio of 5-10 top coins during market corrections. He added that when the market grows, it is worth to participate in initial coin offerings on lanchpads and exchanges, because these operations are fundamental in the segment.
“Cryptocurrencies give everyone the opportunity to become a venture capitalist, unlike stocks. This is their main idea and the opportunity for investors to make money,” Chen Limin said.