The world of trading can be hard to navigate, especially if you are a newcomer to the profession. There are a wide range of trading techniques and styles to learn about in this space, all of which function in different ways. One of the most fascinating of these is copy trading, but what is copy trading in crypto, and how do you partake in this yourself?
Copy trading crypto is becoming increasingly common in the blockchain space, as more and more newcomers are learning about this style and recognizing its sheer potential for success, along with its relative ease. With this in mind, it has become a very important component of the crypto trading landscape, with a growing community of users from many exchanges, including eToro, Binance, Kraken, and KuCoin.
One of the main factors behind learning how to copy trade crypto is directly tied to learning how other well-versed traders undergo their business, and monitoring their behaviors yourself. The best part about this is that through this level of monitoring, and syncing up your behaviors with theirs, you gain knowledge of trading and investments much faster yourself, essentially learning the ropes as you go along.
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What is Copy Trading in Crypto, and Where to Begin?
Copy trading is the act of following the trading habits and behaviors of other traders. Oftentimes, people do this by following more experienced traders, or even by following the actions of trading bots. In other words, copy trading is simply copying the trades of others. This can be done manually, where you track another entity’s actions on your own, or automatically with the help of a dedicated platform or a bot.
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Copy trading is significantly more social than other types of trading, as it involves interacting more directly with other traders. While it is common for people to follow the behaviors of well-known individuals and bots, there are people who choose to copy trade among their friends and co-workers, as these are often trusted individuals within somebody’s social circle.
With this in mind, copy trading can become a way of forming tighter social bonds with other new and budding traders, where each user learns from the other’s successes and mistakes. It can also be a foundational element of a mentor-mentee relationship, where a more experienced trader helps a new trader by encouraging them to follow their actions– and by agreeing to follow, a level of trust is built.
Many people who learn how to copy trade crypto choose to use a service or tool that automatically replicates the trades of more experienced or successful traders. Some cryptocurrency exchanges offer this service. These exchanges allow users to connect their accounts to those of more experienced traders and automatically emulate their trades.
For instance, eToro has a dedicated copy trading tool that is designed to be very user-friendly, making it perfect for absolute beginners. Not only this, but eToro’s copy trading tool is free to use as well. This, too, is a huge weight lifted off many newcomers’ shoulders, as the fear of losing money when starting out is something that looms over many people’s heads.
PrimeXBT also has its own in-built copy-trading tools, where it even ranks different traders and bots, so that you can see how much money they have made during a certain period of time. This is perfect for somebody who is looking to maximize profits without worrying too much about what trading strategies or techniques are being used.
Dedicated tools have made copy trading crypto more enticing, as there is less work to be done, and fewer screens and markets to individually monitor. Without an automated service, copy trading crypto can be tremendously stressful as there can be pressure to always be at a screen just in case the person you wish to copy decides to make a move at any given moment.
Not only this, but in many ways, the crypto landscape has a steeper learning curve than trading traditional assets due to the vast amount of coins and tokens on the market and the inherent volatility it regularly faces. Another aspect of its learning curve comes from the very simple fact that we are all still learning about how these markets actually operate. That being said, brokers such as the aforementioned eToro mitigate these issues and concerns, to an extent.
The crypto space has only existed for a handful of years, and so everybody is still trying to grasp how it functions in terms of technical analysis. A very pertinent example of this is how investors of all backgrounds are struggling to predict how projects like Bitcoin and Ethereum will manage during the recession, as they have never properly existed in one before.
It is worth keeping this in mind when you start copy trading yourself, as even the most well-versed crypto trader will still have knowledge gaps. This is unavoidable as those gaps are caused by a lack of historical data. However, it is not necessarily a bad thing, as sometimes, too much data can cloud judgment and lead to a false sense of security. At least with crypto, everybody is aware of their fallibility, leading to more caution.
This steep learning curve and the option for automation make the process of following and replicating traders easier and more convenient, which naturally makes it more appealing. Automation provides a special peace of mind in knowing that your actions and decisions will be synced up even when you are asleep or busy yourself.
Who Should You Copy?
It is understandable to hear about how to copy trade crypto and assume that it is an easy task, especially when it comes to using automated services in the crypto space. In some ways, this is true– it is simple to follow the trades of another as it relinquishes you of some of the decision-making processes. But it is not without some challenges.
For starters, choosing the right traders to follow is tough. You may want to instinctively pick very popular or well-regarded traders such as Michael Burry, who predicted the 2008 housing crash, or Michael J. Saylor, who is well-known for his Bitcoin investments and profits.
These might be very good picks, but bear in mind that different traders handle their finances in different ways, and you should still research how they go about trading before blindly following. For instance, a well-versed trader might choose to deal largely with futures, which is a type of financial contract where two parties agree to buy or sell an asset at a specific price and date in the future.
Or they may be a big fan of shorting, which is where an investor borrows an asset and sells it with the expectation that the price will drop. They then buy the same number of the asset back at a lower price, return the shares to the lender, and profit from the rest.
Both of these examples can be highly stressful for beginners and those who do not have a ton of cash to spare themselves. So, even if a well-regarded trader is doing this, it might not be smart for a beginner to follow them. Of course, if shorting and dealing with futures is your cup of tea, then, by all means, follow a trader who does this.
The point here is that you should go out of your way to locate a trader who operates in a way that you are comfortable with. Some people don’t like shorting because it can be stressful. Others don’t like it because it can be viewed as unethical when handling assets from smaller organizations, such as when hedge funders shorted GameStop’s GME shares.
If you find a trader who aligns with your own trading beliefs, you will feel much more comfortable going forward and copy-trading crypto with them. So, how do you find out what trading styles you like? This takes trial, error, and research. However, many newcomers tend to feel the most comfortable doing simple spot trading.
This is where you buy coins or tokens at the market price and your trade is dealt with on the spot, rather than at a future date. For instance, simply buying $100 worth of Bitcoin at market rate. It is what most people think of when they think of trading– it is simple and straightforward. There are highly experienced traders who predominantly spot trade, so you could always seek one of these people out.
How to Automatically Copy Trade Crypto
So far, our discussion on what is copy trading in crypto has touched on the act of automating your copy trading habits, but let’s delve further into it now. As mentioned before, places like eToro have a dedicated platform for copy trading, which is simple and effective to do. But you can copy trade on other exchanges as well, even if they do not have a console created specifically for it.
For example, it is entirely possible to copy trade on Binance, Kraken, and KuCoin. This is because each of these exchanges have a trading API (or application programming interface) that allows you to write code that lets you follow other traders. However, don’t worry if you are not a programmer, because services exist which let you harness these APIs yourself without ever writing a line of code.
The most important takeaway is that copy trading can happen even on exchanges that do not have the tools built in. This is great news as it means you can freely choose whatever exchange you are most comfortable with, and that you enjoy trading on the most.
Once you have picked your trader of choice, and set up either the API or the platform you are using, you will then start to see your trades sync up with your target! This is equal parts exciting and scary, but just remember that even when you copy-trade crypto, you are still the one in charge. If you want to disconnect yourself from somebody else, you can easily do that at any time, and reconnect with them in the future, too.
Part of the process of learning what is copy trading in crypto is learning when to pause it and simply observe the actions of others, rather than replicate them. It can be hard to figure out when to do this, but a general rule would be that if you are getting too nervous it might make sense to take a break and go about trading on your own.
So, how exactly do you find people who you want to emulate, because what is the utility in learning what is copy trading in crypto if you never find the right people to copy trade from? For starters, if you are using an exchange like eToro, then they will have a leaderboard of traders available, where they are ranked by the profits they have made over a certain period of time.
You can also find copy traders from certain services which use the APIs from other trading platforms, and help connect newcomers to those who are giving away their trading habits. The best way to grasp for yourself what is copy trading in crypto is to find one of these traders and start following them, as practice helps to cement ideas.
How to Copy Trade Crypto Effectively
It would be useless to learn about what is copy trading in crypto if you never learned how to do it efficiently and effectively. This might sound strange, as in many ways you are not making most of the granular decisions, but rather another party is. For this reason, it is easy to assume that your success comes almost entirely from another person. This is a half-truth, and this way of thinking can be damaging.
If you absolve yourself from your own trading, then you can easily sleep-walk into disaster. If you want to be efficient, then you need to learn how to copy trade crypto intuitively. You need to learn about when you should follow one individual, and when you should switch things up and sync to somebody else.
The best way to do this is to learn about the blindspots and limitations of the traders you are interested in. Even the best of traders will have their own knowledge gaps and mistakes. Know this, and learn what they are, so that you can back away from them when you foresee a situation that they might not be great at.
This is actually why some people prefer to copy-trade crypto with people that they know on a personal level. Having that personal connection with somebody means that you might understand their limitations better than when you copy trade from somebody who you only have a parasocial relationship with.
Perhaps the best option would be to have a roster of traders you would like to copy who are made up of globally revered traders and individuals who you know intimately on a friendship or co-worker level. This offers the best of both worlds. Of course, if times occur when you do not feel comfortable with copying anybody else, then simply disconnect from them all and take matters into your own hands.
Diving Into the Social Side
We’ve covered it throughout this tutorial, as it is impossible to explore what is copy trading in crypto without viewing its social elements, but this has only scratched the surface. There are two major ways in which copy trading can be a social activity.
The first way is that copy trading can function as a niche form of social media, where you are essentially communicating with other traders by following their actions. Once again, eToro is the perfect example here - the brokerage functions like such as platform already.
Those other traders may not know directly that you follow them, but if enough people follow them, then they will start to recognize that their actions and decisions have a greater effect on the larger trading landscape.
It creates a type of democratizing of knowledge and experience; those who are viewed at the top of the trading strata are offering their insights to others by making their trades known. It makes for a more horizontal experience, where those who know the most help those who are just starting out.
This brings us to the altruistic side of copy trading. Many well-versed traders are very happy to provide this knowledge to the public as a way of giving back to the community that helped them gain their riches. Gone are the days of viewing trading as a zero-sum game where one must win and one must lose. While trading definitely involves wins and losses, those who win can always help those who lose by educating them.
This is the crux of why many people choose to broadcast their movements– they want to help people with copy-trading crypto. They want to improve the knowledge base of newer traders. It is an act of giving. That is not to say that some of these traders do not have certain incentives of their own, but the social act of the process means that in many ways, the fact that they are giving back to others is often enough.
Incentives for Helping People Learn How to Copy Trade Crypto
We have mostly viewed the question of what is copy trading in crypto from one perspective, but there is another perspective to cover, which has only been alluded to; those who choose to broadcast their ideas. We just heard that some do it for altruistic reasons, but are there other reasons, too?
A particularly big one is that you can receive payment from it, depending on the service you use. For instance, choosing to be a copy trader on eToro means you receive an annual payment of 1.5% of the assets that people copy-traded when they followed you. Depending on how many people follow you and how much they put in, that could be a huge amount of passive income.
Another reason is that your social status and creditability can skyrocket by helping people copy trade. This is because you are partaking in an important aspect of transparency, where you are making it clear that you believe in yourself and your abilities, and you encourage others to believe you, too. For people who want to become a well-respected trader, this is great.
It also fits into the wider ethos around blockchain and cryptocurrency, where transparency is viewed in a positive light. Crypto has always been about pulling the curtain back and showing the world how to handle and manage money without hiding. Remember that some of the core elements of this industry surround the notion that the opaque nature of traditional finance makes it hard for individuals to partake.
A final major reason why people do this is that they are able to leverage their influence on the markets. By having a collective of people following their trading habits automatically, they can have a greater effect on the markets, which lets them trade with more knowledge about what may happen in the future. It is a huge factor to keep in mind, and having power like that is highly sought after.
Copy Trading Risks and Rewards
All forms of trading come with their own risks and rewards, and this is important to know when learning what is copy trading in crypto. But in many ways, the risks are mitigated when copy trading by simply following well-regarded individuals. Of course, even the best make mistakes, and part of learning what is copy trading in crypto is learning when to cut your losses when a veteran trader is causing problems for yourself.
Learning how to do this takes practice; it is a skill to learn when to walk away. In some ways, it is harder to do this with copy trading because you can always rationalize yourself into continuing to follow somebody else if they have a very good track record in the hopes that their errors will become something tangibly great at the very end.
This can sometimes work, but remember that we are all fallible, and even the best traders can do a poor job of reading the room. This is why it is important to understand the fundamentals of what is copy trading in crypto as well as understand the conceptual elements. Both are needed to make informed decisions.
When you are copy-trading crypto, you should always remember to vet and seriously consider the people you sync to; no matter how famous or how well you think you know them. If you are syncing to a person you know, interview them and find out all you can about them. If you are syncing to somebody in the public eye, research them extensively.
You could say that the essence of learning what is copy trading in crypto is learning how to study other people and learning which people align with you on the trading floor. There is definitely a social side to copy trading, but never let it get in the way of the financial and economic side. After all, this is a money-making endeavor.
Let's briefly look at the other side of the situation. What should you know if you are planning to broadcast your own trades for others to copy? For starters, bear in mind that by opening yourself up to copy traders, you may feel a new level of responsibility for those following you. Is this feeling warranted? It's hard to say.
On one hand, it is fair to argue that we all bear a responsibility to each other all the time, as we share this life with others, and thus, we should not lead people into harm’s way without very good reason. On the other hand, the people who choose to follow you have made that decision on their own accord, and so it is their choice to expose themselves to your actions.
This is one big conundrum that comes up with the topic of what is copy trading in crypto. Like many moral dilemmas, there is no definitive answer, but it is always important to keep them in mind as they shape who we are and how we trade. Plus, thoughts like this make us mindful of how our actions affect others, which is good practice as trading is essentially a conversation about value being enacted on a global scale.
You should now have a good overview of what is copy trading in crypto. This is a relatively simple process which is great for new traders to try out themselves, but it definitely comes with its own questions and concerns. Recognizing these concerns is all part of the process of grasping what is copy trading in crypto, but do not let them get too much in the way of your own activity.
Copy trading is deeply rewarding. The feeling of syncing your trades up with somebody else and then watching both of you succeed makes trading more intimate and connective. Oftentimes traders can feel isolated and alone as staring at a screen with charts and numbers can feel very secluded. However, knowing that somebody else is having the very same successes as you can be elating and deeply positive to your well-being.
In many ways, this feeling of elation and connectivity, coupled with the following of trusted individuals is the answer to the question of what is copy trading in crypto! It is the sharing of trading activities with others, either those you know or those who are well-known. It is the perfect marriage between the economic and the social. This activity can be achieved via many exchanges, such as eToro, Binance, KuCoin, and Kraken.
eToro is a multi-asset platform that offers both investing in stocks and crypto assets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results. The presented trading history is less than 5 complete years and may not suffice as basis for investment decisions.
Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
eToro USA LLC does not offer CFDs and makes no representation, and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity-specific information about eToro.