Advantages and Disadvantages of Copy Trading

Copy-trading (CT) – This term first appeared in 2005. During this time, various clients began to use special algorithms to allow automatic transactions. Thanks to the development of modern technologies, this approach is constantly being improved and is considered very promising. Moreover, many forex prime brokers provide traders with this opportunity and special software. However, there are also disadvantages and pitfalls here.

Basic Information about Copy Trading

The name speaks for itself. Copy trading is a special technology for copying transactions of other traders. This approach is especially interesting for beginners because it allows you to observe and repeat the behavior of professional traders. But it is important to understand all the features and dangers of this strategy. The Forex market has a huge investment attractiveness. Statistics show that every year millions of new traders try their hand. Also, it is worth noting a few interesting features:

  • A third of novice traders (less than a year of experience in Forex) believe that financial markets are a very complex system. Copy-trading allows you to quickly understand the nuances of this system and increase efficiency.

  • According to statistics of 2020, traders using copy trading have received more than $50 billion thanks to this strategy. Forecasts suggest that the $80 billion figure by 2025 could become a reality.

First Steps to Start Copy Trading

You can start copy trading any minute. It is enough to have access to the Internet and minimum start-up capital. To start a cryptocurrency business and use a copy trading strategy, you have to take several steps.

  1.   Choose the best white label cryptocurrency exchange capable of offering a huge number of benefits, guaranteeing security and confidentiality.

  2.   Now find a professional trader who is successful on the platform. It is necessary to pay attention to various aspects: trade statistics, profit made, percentage of successful trades, etc.

  3.   Select the amount of investment. Remember not to go all-in and place all bets on one horse. The amount of money should be proportional to your budget. The amount of investment mustn’t create an inconvenience in your daily life. It is also a good step to invest in a few professional traders who can make a profit.

  4.   Choose the copy trading mechanism that is most attractive to you. One part of traders use manual control and closing deals. The other part uses a special cryptocurrency exchange software. There are also intermediate solutions.

  5.   If the trader is profitable and the results are satisfactory, increase the investment. If on the contrary, do not try to recoup. Better start collaborating with other users.

Main Advantages of Copy Trading

  1.   This is a convenient way for beginners. Because you don’t need global knowledge of the principles and nuances of the market. Copying trades of successful traders will bring this knowledge with minimal risk. Otherwise, bad deals and bankruptcy are very likely.

  2.   This is a good solution that can reduce risks. Because in this way a trader can maximize profits and learn more about the path to success.

  3.   Copy trading has an automated mode that can significantly save time. Thanks to this, transactions will be placed as quickly and efficiently as possible.

  4.   Access to statistics. This is important data that enables risk management. The user can see the statistics and analyze the features of the trader’s work before starting cooperation with him.

  5.   Copy trading allows you to control losses. If a trader does not meet expectations and the investment does not bring profit, the client can choose another trader and start working with him.

Disadvantages of Copy Trading

Yes, copy trading has many important advantages and is sometimes the best solution. But you should also be aware of the disadvantages of this strategy.

  • Even professional traders make mistakes. Therefore, such a decision can also lead to the loss of the deposit.

  • In the case of manual CT, traders must have 24/7 access to the exchange. The use of automatic programs also implies a constant presence on the network.

  • Professional part traders require payment of a commission for their services. Therefore, the profit becomes smaller if successful.

It is important to understand all the advantages and disadvantages of copy trading, and only then conclude: is this approach suitable for you, and whether it will meet your expectations.

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Amaury Reynolds

A freelance writer covering many topics.

Published by
Amaury Reynolds

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