Bobjacksonmz · Follow
12 min read · Nov 30, 2023
Copy trade is one of the most popular methods for earning passive income in the crypto market in recent years. Through copy trading, beginners can profit similarly to experts.
So, what is copy trade? How can you optimize profits with copy trade? Let’s find out in today’s article.
What is Copy Trade?
Copy Trade is a portfolio management strategy in which a trader replicates the trades executed by another trader (often referred to as a pro trader/master) in the market. The goal of copy trade is for the copying trader to have the same position as the person they are copying.
When engaging in copy trade, your account will replicate the trading activities such as opening/closing orders, stop loss, take profit, etc., of the account you want to copy in a certain ratio. Therefore, if that account incurs losses or profits, your account will also incur losses or profits proportionate to the copied account.
In the Forex market, the form of Copy Trade has existed for over 10 years and is becoming increasingly popular. In the Crypto market, it has only gained prominence in recent years.
CHARACTERISTICS OF COPY TRADE
Parties involved in copy trade:
Copier: The person selecting the account to copy, determining the capital to invest, monitoring their copied activities, and paying a percentage of the profits to the copied account in the event of successful trades.
Copied Person (Pro Trader/Master): Experienced individuals executing buy/sell trades in the market, managing orders, receiving a percentage of profits from the copied account in case of successful trades, and earning commissions from brokers.
Trading Platform/Broker: The entity providing a professional copy trading platform, acting as a bridge between the copier and the copied person.
All actions are performed in a certain ratio:
Any trading actions performed by the pro trader you follow (such as opening/closing a position, setting take profit, stop loss, etc.) will be executed in your account based on the ratio between the copied account and the copying trader.
You can stop copy trading whenever you want:
You can disconnect from the copied trades and manage them on your own at any time. If there is a profit, after deducting all fees, you must share a portion with the pro trader you copied.
BENEFITS OF COPY TRADE
Suitable for both new traders and those with limited time:
Success in the crypto market usually requires knowledge, capital management skills, risk management, emotional control, market monitoring, chart analysis, and more. These skills are not always easy to acquire through study alone.
Copy trade eliminates the need for you to do much. Your only job is to choose skilled pro traders who align with your trading style. If they perform well, so will you. The more successful pro traders you copy, the higher your chances of success.
Learning opportunities from the best traders:
This is undoubtedly one of the greatest benefits of copy trading. By observing a professional trader, you have the opportunity to learn when the best times are to open a trade.
This is especially suitable for followers and less experienced traders, helping them learn more about the market beyond the scope of a demo account, witnessing the implementation of strategies and trades by experts.
Moreover, all of this can be done in a non-academic environment — a practical environment with less theory and minimal risk associated with our lack of experience.
Most new traders turn to Copy Trade:
Limit potential losses:
Many traders are not mentally prepared to handle losses. Some may be spending their savings or significant income on the market. Potential losses can negatively impact their lives. Copy trading can help limit hidden losses by replicating what successful pro traders are doing.
Passive investment strategy:
Copy trade is a strategy that does not require much effort. You can invest in anything you want and earn passive income. You can start immediately or spend some time observing other pro traders before deciding to mimic their actions. If one pro trader is not successful, you can always switch to another.
Above all, copy trade is a trading strategy that allows you time freedom. You can trade whenever it is convenient for you. Many platforms also assist you in managing your investment portfolio with advice and suggestions from experts.
Is Copy Trade Safe?
Like a double-edged sword, everything in life has pros and cons. Despite the many benefits that the copy trade method can bring, it still carries certain risks. To answer the question of whether copy trade is safe, let’s look at the risks associated with copy trading:
Market risk:
The biggest risk you will face in copy trading is market risk. Market risk is described as the risk of unfavorable price fluctuations in cryptocurrencies.
If the strategy you are copying does not adapt to market volatility and lacks a good risk management method, you may incur losses and lose money, potentially even wiping out your account. Due to the passive nature of copy trading, when market risks occur, you may be unable to react in time and are at risk of substantial losses.
Exchange risk:
There are currently many fraudulent and unreliable exchanges on the market aiming to profit. It is easy to encounter such exchanges if you are inexperienced in evaluating and assessing whether an exchange is good or not.
Price slippage risk:
When the number of people copying a trader surpasses a certain threshold, some copied accounts may not enter at the exact entry price of the trader they are copying. Similarly, this can happen with take profit and stop-loss prices.
Risk associated with the trader you copy:
This is the most common risk that many amateur traders fall into when copying trades. Sometimes, a pro trader continuously closing large orders does not necessarily mean they are skilled. It could be the result of a hot and unsustainable growth period. Therefore, make sure to carefully choose a professional and experienced pro trader.
Furthermore, copy trading will also make you dependent on the pro trader. In other words, you are entrusting your money to a stranger.
One thing to keep in mind is that, regardless of how skilled or professional a pro trader is, they are fundamentally still a trader. They will have their winning and losing trades. What if you start by copying their first losing trade in a series of losing trades? Do you have the courage to continue copying their trades?
With the same pro trader, some followers make profits, while others enter during a losing streak. Therefore, there is nothing 100% safe in trading.
Profit and loss depend on the trader. Parameters to consider when copying trades:
Yield: Cumulative profit. Be cautious not to be attracted if the yield is too high. A high yield with low trade frequency might indicate the trader is lucky in a bullish market. Alternatively, a high yield could be due to a few winning trades covering several losing ones.
3W win: Win ratio for the last three weeks. Consistent win ratios are favorable. Also, pay attention to the length of the longest losing streak.
Avg. yield per order: Average profit per trade. A higher average yield is preferable.
Followers: The higher the number of followers, the potentially more skilled the pro trader. However, be cautious with this indicator. Details will be discussed in the section on choosing a good pro trader below.
3W orders: The number of trades placed in the last three weeks. The number of trades should ideally be 30 or more, averaging 10 trades per week.
Profit share: The percentage of profit you will share with the pro trader in the event of a winning trade. While not crucial, it’s worth considering. The usual profit share ranges from 5–10%, with an average of 8%.
How to Start Copy Trading:
The first step to start copy trading is to create an account on a reliable trading platform that offers this service. Most platforms nowadays provide various options to follow pro traders.
For example, if you already have a direct account, you always have the option to open additional sub-accounts, allowing you more flexibility, such as using one account for manual trading and others for copy trading.
Next, you can choose an experienced pro trader from the list provided by the trading platform. The choice of which pro trader to copy depends entirely on you, but there are some parameters to consider, such as the number of followers, investment portfolio, actual trading time in the market, trading performance, win ratio, and profit. For instance, you might want to follow a pro trader with a high profit percentage or one with a consistent trading pattern.
The third step is to decide how much money you want to invest and be financially prepared for potential risks. A classic investment saying you should keep in mind is never to put all your eggs in one basket. Start with an amount that is sufficient and diversify by copying different pro traders or allocating some for manual trading to enhance your experience.
The final step is to monitor and wait for your investment portfolio to yield profits.
CRITERIA FOR CHOOSING A PRO TRADER FOR COPY TRADING:
Number of followers and their feedback:
Evaluate the performance of a pro trader based on the number of followers and their feedback. Many platforms even have a Top 10 Pro Traders list based on the number of followers, among other factors.
Successful pro traders usually have many followers and receive feedback through reviews and ratings. This information can be crucial in making a decision.
Actual trading time of at least 6 months:
While experience is not solely determined by the number of years, it can be a criterion to assess a pro trader’s understanding of the market and adaptability.
Choose pro traders with a track record of at least 6 months, ideally a year or more, with a relatively significant trading volume. If a trader has only made a few small trades in a year, they might not be reliable.
Trading history, win ratio, and profit:
Some platforms allow you to view a pro trader’s trading history and current profit. Examine how close they are to their profit target and the win ratio to determine if you should copy their trades.
An ideal win ratio for a skilled pro trader is above 60%.
Investment portfolio, profile, and risk management:
Assess a pro trader’s investment portfolio to understand if they diversify to minimize risks. Do they actually invest in assets they predict will rise?
A completed profile can indicate the seriousness of a pro trader. If the profile is incomplete, it might suggest they are new or not concerned about their own profile. In such cases, it might be better to look for other traders to copy.
A good pro trader must have effective risk management skills. Ensure you find a pro trader whose risk appetite aligns with yours.
Optimizing Profits with Copy Trading:
Choose a truly “pro” trader:
Evaluate a pro trader’s investment performance over time. Look for consistent performance over at least 12 months. A longer trading history provides more data for analyzing their behavior and trading results.
Seek pro traders with consistently profitable results rather than sporadic ones. Analyze their performance chart — does it show a gradual increase or sudden spikes? A sudden increase followed by a decrease is not a positive sign.
Profit:
Look for pro traders with a consistent trading performance rather than occasional high profits. You can analyze this by examining their performance chart. Does it show a consistent upward trend or erratic movements? If there are sudden spikes followed by decreases in a short period, it might not be a good sign.
Number of followers:
A pro trader with a large number of followers may indicate success. However, the ultimate decision to follow their trades is yours.
Risk level:
Choose a pro trader with a risk appetite similar to yours. Check if they use stop-loss orders and other risk management tools. Review their trading behavior to ensure it aligns with your investment goals.
Post-loss behavior:
Profitable trades demonstrate a pro trader’s successful trading strategy. However, losses can still occur. It’s essential to review a trader’s behavior in various market conditions, especially when the market moves against their strategy. Do they stick to a consistent strategy, or do they abruptly change direction?
Following Multiple Pro Traders:
In my experience, it’s advisable to follow 3–6 pro traders, including both scalping and swing traders. This helps limit risks and balance long-term profits.
Capital Allocation in Copy Trading:
After creating a list of pro traders to follow, consider how to allocate your capital to optimize profits.
The principle here is not to put all your eggs in one basket. You can allocate 5–10% of your capital to each pro trader on your follow list to test their trading performance over a certain period. If a pro trader consistently performs well, you may consider increasing your capital allocation to them. Conversely, if a pro trader performs poorly, it’s advisable to unfollow them.
For example, if your initial capital is $1,000 and you have 5 pro traders (let’s call them A, B, C, D, E) on your follow list, you would allocate $50 to each pro trader for testing over one month. After one month, if pro traders A, B, and C show good performance, you may increase your copy trading capital for these three.
Trust in the strategy of the pro trader you follow. Consistently executing profitable investments is challenging, even for top investors who make mistakes. It’s crucial to remember that when choosing a pro trader to copy, occasional mistakes are acceptable. However, if a pro trader consistently makes significant errors and losses, it might be time to consider copying a different pro trader.
Copying a trading strategy from a skilled expert can potentially lead to long-term profitability. The key is to follow the right pro trader and trust in their strategy.
Reputable Copy Trading Platforms:
BingX:
BingX (formerly Bingbon) is one of the few derivative platforms offering automatic copy trading features. Traders can follow and copy positions from leading pro traders in the cryptocurrency market. Eight percent of the profits generated from followers’ copied trades are returned to the pro traders. BingX provides risk management options for followers based on their available capital.
Binance:
Binance is undoubtedly one of the best copy trading platforms, allowing you to trade in various ways, including copying trades from professional and experienced pro traders who have been active in the market for a while.
Who Profits from Copy Trading?
Think about this question for a moment. In all fields, who profits? It’s those with knowledge and experience: skilled craftsmen, proficient doctors, Ph.D. professors. Whether they are assistants or construction workers, they still need to learn the trade.
So, do professional traders or fund managers copy another trader to profit from the market? I don’t think anyone does that. They rely on themselves, seek learning, and hone their skills to earn money in the market.
Because each of them has invested a lot of time and effort to reach their current position. They believe there’s no free lunch, and they don’t trust putting their future in the hands of strangers. Their success requires years of battlefield experience in the market.
If such individuals are not deserving of profits, why would you believe that simply copying someone else’s trades will bring money to your pocket? So, gaining profitable experience in copy trading is not easy.
Is Copy Trading Suitable for You?
Copy trading is undoubtedly an effective medium to long-term financial investment channel for those without much expertise, busy traders who lack time for daily market monitoring, or those who want to diversify their investment portfolio with limited capital.
However, like any other investment, thorough research about the pro trader you intend to copy is essential. Monitor their profit ratios and risk levels to decide whether to start, stop, or continue copying.
If you aim to become a professional trader, copy trading can be a short-term option to generate income before you can trade independently. Earning income through your analysis will make you more proactive in your investments.
If you want to keep copying trades forever, you may become passive and sometimes lose control of risks because you depend entirely on the analysis, feelings, and psychology of others.
Legendary investor Jesse Livermore once said, “Speculation is the most fascinating game in the world. But it’s not a game for fools, lazy thinkers, or people with poor emotional control who want to get rich quickly. They will die in poverty.”
So, if you still feel lazy and want to make money quickly (30% per month, recoup within 3 months, double your account in 6 months), remember this quote!
In conclusion, copy trading is one of the most popular ways for newcomers to earn passive income in the crypto market. It requires low initial capital, offers significant profit potential, and the exciting features of copy trading platforms make it easier for you to enter the market.
However, like any investment, be aware that copying trades doesn’t guarantee profits. There will be times when your investment incurs losses, and you lose your own money. Therefore, carefully consider before entering the field of copy trading in the crypto market.
Earn your first profit from the copy trade feature on this trading platform.
