5mins read
Published on: Oct 17, 2024
#Trading 101
Choosing between copy trading or traditional trading depends largely on your goals, your risk tolerance, and your commitment. This article compares both to help you choose the best fit.
➔ Copy trading is a method that works best for beginners or busy traders to follow professionals on autopilot and learn from them without actually making much effort.
➔ Traditional trading gives you full control over each trade, and it takes more time and knowledge, but it may offer more rewards and personal development.
➔ Your risk appetite, desire to be in control, and time to invest in learning the markets will determine whether you should choose copy trading or the traditional method.
The world of trading is rife with different methods – copy and traditional trading are two of them.
Although both copy and traditional trading provide the opportunity to earn off-market movements, they take very different approaches, amounts of effort, and risk management strategies.
This article will show you the difference between the two and help you decide which trading style is right for you.
Copy trading is a form of automated trading that allows traders to mimic other traders, usually more experienced ones. In short, you can copy the strategy of a professional if you’re a beginner or prefer not to manage trades directly. Copy trading platforms allow traders to follow the account of a professional trader so that every trade made by the pro is copied to the copier’s account.
Recommended Read: The Complete Copy Trading Checklist for Beginners
Below, we will list the advantages and disadvantages of copy trading.
• Ease of Use: For beginners or those who don’t have the time to monitor the market, copy trading is the ideal choice as it does everything for them automatically.
• Learning Opportunity: As a professional trader controls your trade, you have the chance to see how the strategies work and learn from the Master Trader’s decisions.
• Diversification: Many copy trading platforms allow you to copy more than one trader at a time. Following multiple strategies or experts helps you spread your risk.
• Hands-Free: After you’ve got the trader to follow, you don’t need to analyse the markets or be actively engaged.
• Reliance on Another’s Expertise: The strategy can work in your favour, but it also means your entire decision-making is based on someone else.
• Lack of Control: As trades are made automatically, you may not have the same ability to change in real-time when the market suddenly shifts.
• Fees and Profit Sharing: Most platforms charge a fee for their service or for the trader you follow, which can cut into your profits, especially if the trader is less successful.
In traditional trading, you make your buy and sell decisions on your own, based on your market research and strategy. This method involves you more in every aspect of the trade. Below, we will explore the advantages and disadvantages of traditional trading.
• Complete Control: Traditional traders have full reign over their trades, with entry and exit points, stop loss orders, and risk management within their own control. All decisions are yours to make.
• Custom Strategy: You can craft a personal trading strategy based on what you know, what you have researched, and what you like. This strategy could involve long-term or short-term investments or short-term trades.
• Greater Learning Experience: Engaging directly with the market provides a better learning experience. The best way to learn to trade and grow as a trader is through your mistakes and successes.
• Time-Consuming: Trading in the traditional way requires much time and effort. To be well-informed in making decisions, you must keep up with market trends and news and perform technical analysis.
• Steeper Learning Curve: Creating a profitable strategy in markets requires time as well as some trial and error.
• Emotional Stress: Trading involves decisions that must be made in volatile market conditions. Emotional reactions during market fluctuations can eventually lead to poor trading choices.
From this perspective, one of the major differences between copy trading and traditional trading comes down to the risk/reward ratio.
Copy trading is more manageable because you follow an experienced trader to mitigate your risk. However, the reward can be smaller than in traditional trading since some platforms charge a fee for their service or even collect a percentage of your profits.
Traditional trading: In regular trading, there is a potential for higher return; but it also comes with higher risk. It can lead to big losses if you don’t understand market analysis or do not have a solid risk management approach.
To decide between copy or regular trading, you need to consider two important factors: your goals and risk tolerance.
Are you looking to make passive income? Copy trading is a great choice if your main goal is to make money, but do not want to spend much time researching. You can simply follow the strategy of an experienced trader without having to spend hours learning to trade.
If you’d like to grow and learn as a trader, try analysing the moves of experienced traders in copy trading. However, if you want to gain a deeper understanding of markets, how they work and how to create your strategy, you may need to try traditional trading. By being directly involved in the markets, you can get valuable experience in time.
Almost all trading approaches come with risks; they simply come in varying amounts. If you have a lower risk tolerance and prefer a more hands-off approach, copy trading is a safer way for you to get introduced into the trading world. However, if you’re comfortable with taking more calculated risks and making your own decisions, traditional trading offers greater control and flexibility.
Deciding between copy trading or traditional trading is ultimately a matter of personal preference, goals, and risk appetite. Copy trading is good for those looking for a more hands-off, passive approach to trading, which goes to people relying on the expertise of others. This is an ideal way to get involved in the market without spending any time or effort.
On the contrary, although traditional trading is a much more hands-on approach, it gives you full control over your investments. This method can pay off more but requires more knowledge, discipline, and emotional resilience.
There is no “one-size-fits-all” answer in the end. Consider your experience level, how much time you are willing to spend learning, and your tolerance for risk. If still unsure, starting with copy trading would be a good balance since you will gain confidence and step into traditional trading once you are comfortable enough with the market dynamics.
Register on BitDelta for a comprehensive trading experience, whether in regular trading or copy trading. Visit our blog or follow us on social media for the latest market news and tips.
It’s copying another trader’s trades. It allows beginners or traders with little time to engage in the markets without having to be actively involved.
Traditional trading offers a greater chance of profit as you control your strategy and trades. However, it is also a higher risk, requiring more time, knowledge, and discipline.
Yes, there is always the possibility of losing in trading. Choose a master trader with a history of proven trading and be careful with your risk.
Generally speaking, beginners will benefit more from copy trading as they would not need in-depth knowledge of the market. You can follow an expert’s strategy by learning how trades are made while saving the learning curve and your time.
Copy trading is an automated process. After you’ve chosen a trader to follow, the platform will replicate their trades in your account automatically without you having to keep an eye on them. However, it is still important to check your performance from time to time.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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