What Is Copy Trade? Opportunities And Risks When Using Copy Trade

What is copy trade?

Copy trade is the act by which another trader copies a trading example of an experienced investor into his portfolio.

Often copy trading or copy trading is common among less qualified traders in the forex, crypto, etc., market.

Or they don’t have time to follow when placing a position.

Before starting copy trade, you need to analyze your trading position. Raise the issue of risk and the amount of capital that can be committed to that transaction.

Because even if you choose an experienced trader to make copy trade, your capital is still at risk of losing its whiteness as usual.

How does Copy Trade work?

Copy trade connects a part of your portfolio to the portfolio of the trader of your choice.

After making a copy trade, all open positions in their portfolio will be copied to your account. Accordingly, their future positions are also copied by your account.

When copying trade, you need to consider setting the following parameters:

Copy amount: The amount you want to set for each copy trade. When you choose a copy of 1000 USDT, the amount of money you copy to your order is also only 1000 USDT. There is advice that only 10% of capital should be used for safety.

Maximum copy amount per day: No more copies will be made if the transaction volume exceeds this amount.

And there are many parameters to consider depending on the broker that supports copy trade.

Benefits of copy trade

Copy trade is a form of portfolio management. The goal is to find other investors with high experience and profitability. The copy process allows the trader to monitor the strategies of other traders.

Copy-trading can be helpful for traders who don’t have time to follow the market. In general, copy trading focuses on short-term trading. But there are several different strategies used to generate revenue.

While profitable, there are also risks involved, and traders should remember that past results are not a guarantee of future profitability.

Portfolio diversification

Copy trade helps people diversify their portfolios. It can be understood that copying makes more money in the market.

Like buying Bitcoin, many people prefer to split more capital to invest in other coins such as Ethereum (ETH), etc. Copy trade, do not focus all your investment on a trader, and it would help if you split it up with other traders to make the copy.

Diversifying the selection of traders may be based on different grounds. For example, consider copy traders using different timeframes if you want to make a short-term investment or a daily return target.

Copy trade with a large team has a complete model, and most form a registration model. In which, as a model participant, you have to pay a fee to copy trade every month.

The risks of copy trade

The most significant risk a trader will run when comes from market risk. Suppose the strategy a trader is copying is unsuccessful and loses money.

Traders also face liquidity risks, and the instruments they are trading have poor liquidity when the market is volatile.

Finally, the trader may face systemic risk if the traded product experiences a sharp fall. And there are quite a few risks that you need to experience firsthand to understand them all.

Criteria for selecting a Trader to perform Copy trade

Traders deliver matches over time

That is, a trader who provides 3% profit per month within one year is much better suited than a trader whose 6-month profit is 10%, and 6-month loss is 7%. When you look at the performance chart history, consistency is shown that the chart is going up.

Show followers count

The more people follow that trader, the better. This is a crucial advantage of a trading network as it allows you to benefit from what investors analyze and enter the order. However, it would help if you did not use this as a standard element.

Consider how they put the stop loss.

Consider how they set the stop level? What distance is it? Set stop loss to be used to manage the risk of the trade.

The stop loss level determines the level of risk (i.e., how much money can be lost on this order). There is no stop-loss, which means the risk level is not limited, which can be dangerous.

Look at the win rate.

This doesn’t have to be discussed. Often a high win rate of 80% or more will be an exciting number to attract copy traders.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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