5mins read
Published on: 12 hours ago
#Trading 101
Copy trading, BitDelta's latest feature, allows a trader to automatically copy the exact trades executed by professional traders known as Master Traders.
➔ In copy trading, a trader’s performance is dependent on those of the Master Traders you follow on BitDelta.
➔ In this blog, we will help you choose the right Master Traders to follow on BitDelta.
Copy trading is an investment strategy that can be implemented across asset segments, whether it’s stocks, commodities, forex, cryptocurrencies or indices. It is an astute investment strategy which requires minimum time and effort and is the preferred strategy of traders who lack either skills or time.
If you opt for the copy trading feature on BitDelta, your trading account gets connected to the Master Traders you like, and each of their trades gets automatically executed in your account. This way, you can save yourself from extensive market research and analysis and simply duplicate the trades of Master Traders.
Image: What is Copy Trading, by IFC Markets
Copy trading offers several benefits:
• Automated trading
• Learn from the Master Traders
• Portfolio diversification
• Risk management
Recommended Read: Importance of Risk Management in Trading
Copy trading has several limitations and risks:
• Market risk
• Execution risk
• Dependence on Master Traders
In this blog, we will help you understand how to choose the suitable Master Trader. In copy trading, choosing the right Master Traders is the most important part as it’s their exact trades that get automatically copied to your account.
A Master Trader prefers a particular investment strategy, chooses which assets to trade, chooses when to open and close positions, manage risks, and so on. The profitable performance of Master Traders would lead to a copier also realising profits in trading, while their unprofitable performance would lead to a copier also suffering losses.
Thus, your performance is only a reflection of the collective performance of all the Master Traders you copy. Thus, it is crucial that you choose the right Master Traders to pursue a successful trading journey for long-term. We recommend that you choose the Master Traders on BitDelta based on the following factors:
Analyse the investment portfolio of a trader and check if it is diversified enough. A diversified investment portfolio across assets including stocks, indices, commodities, cryptocurrencies etc. is the best tool of risk management as all your eggs don’t lie in a single basket.
A trader’s successful performance history doesn't necessarily guarantee future success. However, it can shed light on their trading skills and risk management. Consider the trader’s return on investment (ROI), consistency in generating returns, performance during economic downturns, and recovery strategy. Check if the trader has incurred more losses than gains. Also check how long they have been trading for in the market.
Consistency in generating positive returns is the hallmark of a successful trader. It's much better to copy a Master Trader who generates 3% returns every month in a year than a trader who gains for six months in a year and loses during the rest of the months.
A trader’s strategy can be oriented towards long-term or short-term growth. One trader can choose high-risk, high-reward assets to trade while another can choose low-risk, low-reward assets.
If you are a risk-averse and conservative trader, you should follow a similar trader. If you are a trader who runs after higher gains, you should follow a trader who doesn’t mind getting into risky situations.
A trader who has a diversified portfolio, uses Stop-Loss orders, and has other such tricks up his sleeves is generally better at managing risks in trading. Such a trader can minimise losses even during a severe downturn. We recommend that you only take risks with your funds which you can afford to lose.
• Always check the risk score of a trader based on their statistics and behaviours.
• A high-risk score means that the trader takes risks but also shows outsized returns.
• A low-risk score means that the trader takes a safe route but generates impressive returns.
If a trader has a substantial number of followers on the BitDelta platform, it signifies a high level of trust for that trader among the trading community. A Master Trader with a lot of followers is almost like a social media influencer who you can trust.
Isn't copy trading a fusion of trading and imitating an influencer? However, you shouldn’t blindly trust a trader as nobody can be right every time.
Image: What to Look at While Choosing a Master Trader, by BitDelta
Regularly assess the performance of Master Traders you follow whether your trades are in green or red. Observe the strategies, tactics, mistakes, risk tolerance etc. of Master Traders you follow and check how their collective performance affects your overall performance.
ROI, risk management, consistency and other such factors are the best indicators to critically analyse the performance of a Master Trader. Once you observe the Master Traders you copy over a few weeks or months, you can assess who is performing better or worse.
You can then accordingly adjust capital distribution among Master Traders and assign more percentages to the successful ones and less to the unlucky ones. This way, you can ensure that you always choose the best Master Traders for copy trading on BitDelta.
Happy trading!
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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