The Ultimate Guide to Crypto Copy Trading in 2024

Copy trading is increasingly popular with young retail investors, but there are risks. This guide will cover them all.

A man dressed in red and green dancing on a candlestick chart.
  • Crypto copy trading has become increasingly popular among younger retail traders. 
  • This form of social trading lowers the barrier to entry for crypto trading. 
  • However, traders should be aware of the pitfalls, like copying traders with no skin in the game or choosing the wrong platforms.

Cryptocurrency trading is becoming increasingly popular among a younger retail crowd. Consequently, this new crop of traders is making its mark on the investment world. 

This likely accounts for the rise of social trading, where groups of expert traders share insights with a community. 

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Communities like Wall Street Bets are cropping up to cater to traders increasingly seeking a social experience. This new development has also led to the rise of “trading influencers” and crypto copy trading. 

What Is Copy Trading in Crypto?

Copy trading is a type of investment in which traders and investors can automatically copy the trades of successful and experienced traders. For example, by copy-trading Bitcoin whales, beginners can easily follow trading pairs like BTC/USDT in real-time and mimic the behavior of top traders. This offers an excellent option for new traders still learning about the crypto market.

Recently, copy trading, or mirror trading, has become a massive phenomenon in the crypto market as well. Leading crypto exchange, Bitget revealed it has over 80,000 influencer traders and more than 380,000 follower traders on its platform. 

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However, copy trading in the crypto market also has its drawbacks. This guide will cover the main benefits and risks of copy trading in the crypto market. Moreover, it will offer some tips on maximizing the advantages and reducing the risks associated with copy trading in crypto.

Advantages of Copy Trading

Copy trading has a few interesting features that set it apart from other types of crypto trading. Many of these features will likely appeal to traders just starting with crypto trading.

It Makes It Easy to Start Trading

Becoming a successful crypto trader takes time and effort. The amount of research required to become a competent trader can seem overwhelming. Faced with that daunting task, many traders don’t even start. 

With copy trading, traders can start right away. Picking an experienced trader to copy is much easier than doing all that research. 

It’s Hands-Off

In addition to requiring much research, active trading also takes time. Traders must stay on top of all market news and constantly consider their positions. This makes trading not worthwhile for traders who don’t have a lot of capital. 

By contrast, copy trading allows traders to leave all that work to those they follow. They can benefit from the hard work others do in market research, devising strategies, and more.  

It’s a Great Way to Learn

Copy trading is also an excellent way for new traders to learn about the crypto markets. By following experienced traders, new traders can gain valuable insights into trading. 

Copy trading also enables traders to get insights from professional traders directly. Good trader influencers will share their data and insights with their followers. They will readily give insights into each trade they are making. This makes copy trading a great way to learn and eventually start trading independently.

Risks in Copy Trading – and How to Avoid Them

While copy trading has its advantages, it also comes with potential pitfalls for new traders. Every trader should know the potential risks and ways to mitigate them.

Picking a Trader Based Solely on Past Performance

When logging into a copy trading platform, traders will see each trader influencer’s return on investment (ROI) numbers. Some may be tempted just to choose the one with the biggest returns and most frequent win rate. That is rarely the optimal strategy. 

The fact is, many crypto traders are just lucky. Traders with the riskiest positions often have the biggest gains in the short run. 

Everyone is a genius in a bull market, but this success rarely lasts. Inevitably, market conditions change, and some of the best performers may lose it all. It’s crucial to practice good risk management and protect your assets always.

Instead of just looking at the ROI numbers, traders should review each trader’s strategy and trading history before picking the one that makes the most sense. 

Not Doing Any Research

While copy trading is hands-off relative to other trading strategies, it still requires some due diligence. Copy traders should be familiar with the basics of crypto trading before they invest significant amounts of money. 

Knowing the basics will allow them to distinguish between traders with a workable strategy and those relying on excessive risk. Doing the basic due diligence will pay off dividends in the future. 

Picking a Trader With No Skin in the Game

Before copying someone’s trades, traders should always check how much skin they have in the game. Has the trader put significant capital behind his trades? If not, traders should likely avoid copying that trader. 

Unfortunately, the crypto space is filled with unsavory characters. That’s why traders must be mindful of trusting people who do not have their best interests in mind. 

The best way to prevent that is to follow traders who trade with their capital on reputable platforms.

Choosing the Right Platform

Picking the right platform could make or break a copy trader’s performance. Between platform security, fees, and ease of use, the platform is one of the most important aspects of copy trading. 

Traders should consider a few factors when choosing their copy trading platform. For one, traders should look at platform fees and whether there are specific fees for copy trading. 

Another critical factor is the ease of use. Both new and seasoned traders benefit from an intuitive platform. For instance, leading crypto exchange Bitget offers “One-Click Copy Trade” as an easy and intuitive way to start copy trading in the spot and derivatives market. 

Traders should look for platforms with the biggest community of crypto influencers. The more pro traders there are on a platform, the better the chances for a copy trader to find one with a strategy that aligns with theirs. 

Finally, finding a platform with the right instruments is also essential. For most crypto traders, spot trading is likely more familiar than derivatives. These traders could look at platforms like Bitget, the largest copy trading platform for the crypto spot market. 

Getting Out too Early

According to billionaire Peter Lynch, the stomach is more important than the brain in investing. That’s because it takes guts to stick with a strategy when one’s portfolio is down. 

Too many people leave a position as soon as their performance drops. However, research suggests that that’s the opposite of what they should do. 

According to a paper by Dalbar, the average investor consistently underperforms the market. This is because average investors get in after an asset rises in value and don’t stay invested long enough to see long-term gains. To reap the best gains, investors should pick the traders they like and stick with them. 

How to Automate Your Copy Trading Account

There are dozens of ways to set up a crypto copy trading wallet that are both user-friendly and give you an extensive range of trading styles to mirror. In most cases, the easiest way to get started is to use the copy trading services provided by leading crypto exchanges.

Almost all top cryptocurrency exchanges now provide some kind of copy trading software. Everyone from Binance to ByBit and even trading apps like Etoro have created a social platform where successful traders can showcase their talents. 

As an added benefit, traders at the top of their respective leaderboards will also earn profit-sharing revenue from those that follow them, theoretically turning crypto copy trading platforms into a win-win for all involved.

Once you’ve chosen your platform, you must decide who you believe to be the best crypto trader based on metrics like track record, liquidity, and AUM (Assets Under Management). From there, you’ll automatically copy all the trader’s moves, including their stop losses and risk tolerance.

Copy Trading in DeFi

Not wanting to miss the action, several crypto trading bots now offer unique functions allowing traders to copy crypto asset trading directly on the blockchain. Projects like Unibot and Maestro have developed Ethereum (ETH) trading bots that operate through the Telegram mobile app.

These complex platforms have made it possible to copy trade any on-chain wallet in real time. While this can be an effective strategy, it needs to be said that on-chain volatility is far greater than within centralized exchanges, and you could lose everything.

On the Flipside

Copy trading could face increasing competition from bots and machine algorithms. Both of these technologies are becoming increasingly popular in crypto trading.

Why This Matters

Copy trading is an interesting option for retail traders who want to jump into the crypto world or are looking for a more diversified trading strategy.

FAQs

Can I use copy trading for margin trading?

Yes, most copy-trading platforms support margin trading.

Is copy trading fee?

Copy trading is not entirely free because expert traders generally receive a small percentage of copy trader’s profits.

Is copy trading safe?

Like everything in the crypto market, copy trading has plenty of risks. By mimicking the behavior of another trader, their success is your success, but their drawdowns are also your losses.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.