5min read
Published on: 6 days ago, Sep 27, 2024
#Trading 101
Copy trading allows a trader to simply follow successful traders and automatically copy the exact trades executed by them.
Copy investing has gained currency among the global trading community over the past few years as early participants demonstrated extraordinary success with little effort.
Copy trading is an astute investment strategy which requires minimum time and effort. If you are short of expertise or time, copy trading is just the right financial tool for you.
Copy trading is a type of social trading, specifically beneficial for new traders who aren't as familiar with the trading world.
Image: Copy Trading, by IG
In copy trading, your trading account gets connected to the Master Trader you choose, and every trade of theirs gets automatically executed in your account.
Thanks to this feature, you can save yourself from conducting extensive market research and analysis. Instead, you follow the most profitable traders and automatically replicate their trades in your own account.
Sometimes, even experienced traders do not have enough time for trading - which leads them to go for copy trading, as it offers high returns with minimum risks.
Copy trading is an investment strategy that can be implemented across asset segments, whether it's stocks, commodities, forex, cryptocurrencies or indices.
Copy trading allows you to opt for the traders you want to follow based on a few factors:
If you happen to be a risk-averse and conservative trader, it is recommended to follow a trader who shares the same mindset. On the contrary, if you're a trader who runs after higher gains and enjoys taking risks, it is best to follow a trader who is not against getting into risky situations.
Copy trading works in two ways: Automatic and Semi-automatic.
Automatic Copy Trading
In automatic copy trading, the trades of the Master Trader you are following get automatically executed in your account.
This is how it happens: suppose the copied trader, in our case Master Trader, opens a new position in their account. That same position will automatically open in your account.
How you choose to close this position is up to you. You can either wait for the Master Trader to close their position, which will then automatically close your position. You can always close the position manually.
Semi-automatic Copy Trading
As the name suggests, semi-automatic copy trading works very similarly to copy trading, but is still a bit different.
Suppose the Master Trader opens a new position in their account, you will immediately get a notification about it. Now, you can either proceed with the exact trade as executed by the Master Trader, or reject the suggestion.
Similarly, you can choose the close the position whenever the copied trader closes, or you can close it manually.
Copy trading is a type of social trading. However, both of them are very different.
Social trading is an online trading activity in which different traders connect with each other on social media and share tips, tricks, and strategies for successful trading. Knowledge sharing is the primary component of social trading in which the trading community shares investment knowledge and profits off the learning shared among each other.
Image: Social Trading, by WallStreetMojo
Copy trading is a very specific type of social trading in which you simply follow the successful traders and copy their trades to realise profit with minimum risk.
While social trading is a very active task, copy trading is a rather passive activity.
The main benefits of copy trading are:
Recommended Read: Importance of Risk Management in Trading
Even though copy trading offers a lot of benefits, it still carries risks inherent to trading and those specific to it:
Market Risk
Copy trading carries all the risks that are inherent to trading such as price volatility, illiquidity, tax rate hikes etc. If these risks arise, they will affect not only the performance of the copied traders but of yours too.
Execution Risk
Copy trading also carries an execution risk in which there is a massive difference in the prices at which the Master Trader executes a trade and your trade gets executed. This happens when there is a volatile price movement within a few minutes or even seconds.
Dependence on Successful Traders
Your performance in the market is directly linked to those of the successful Master Traders whose trades you copy. Such a situation makes you entirely dependent on successful traders you follow. Since no such trader can be successful all the time, you need to keep re-evaluating the traders you follow based on their latest performances.
If you are a novice who wants to begin trading in the market but lacks the necessary experience, or you are an experienced trader who wants to gain exposure to new trading trends, copy trading is the best tool for you.
Copy trading is used by inexperienced traders to leverage the trading experience of other successful traders to trade with minimum risks.
It is used by experienced traders to learn innovative trading strategies from experts. Experienced traders who are short of time also utilise it to trade with minimum effort.
There are traders who attend every seminar in town, learn from Youtube tutorial videos, read investment-related books, and develop a robust strategy to trade in the markets.
However, not everyone is as dedicated, or simply doesn’t have so much time at hand after a 9-5 job. But even the other category of traders is as desirous of making profits off trading as the first category of dedicated traders.
This is why copy trading has become so popular among traders worldwide and witnessed exponential growth over the past few years.
A lot of traders tend to trust copy trading as they believe they are following expert traders and are in the boat as a lot of other traders.
Copy trading existed even before the advent of social media. Earlier, celebrity traders used to publish newsletters or columns in finance newspapers, magazines etc. in which they wrote about their trading tactics in detail. Interested readers used to copy their traders and frequently made money.
With the rise of the internet, the trend shifted online which led to the growth of copy trading on social media and online forums. Trading exchanges leveraged the success of copy trading on such forums and simply integrated the above feature on their platforms.
Now, a trader doesn’t need to browse through different forums to learn about the most innovative and best performing trading tactics. He can simply follow successful traders on the exchange and copy their trades.
Copy trading gives a trader an opportunity to trade with minimised risk and make the same returns as Master Traders.
Image: Benefits of Copy Trading for Beginners, by Traderton
If you believe copy trading is the right path for your investment journey, we recommend that you develop a solid strategy for the same.
Here are a few things to keep in mind to develop a copy trading strategy:
Yes, BitDelta has recently launched its copy trading feature.
Here's how you can start copy trading your favourite Master Traders with BitDelta:
Log in to your BitDelta account and select "Copy Trading" from the navigation bar.
You will be redirected to the Copy Trading page, on which you will find two main buttons:
- Go to My Copier Dashboard: As a copier, this will grant you access to your personalised dashboard.
- Apply to be a Master Trader: Click on this button if you are interested in being a BitDelta Master Trader.
Verify your KYC.
Deposit funds to your BitDelta spot wallet, and transfer them to your Copy Trading wallet.
Pass the derivatives and copy trading quizzes to validate your knowledge and explore the Copy Trading portal.
What is copy trading?
Copy trading is an investment mechanism that allows a trader to simply follow the successful traders and automatically copy the exact trades executed by them.
How does copy trading work?
In copy trading, you follow a few successful traders, and their trades get executed on your behalf too. Suppose a trader you follow opens a new position in their account. The same position will automatically open in your account. Now you can close the above position whenever you like. Or you can wait for the copied trader to close their position so that your position gets closed automatically.
Is copy trading different from social trading?
Copy trading is a type of social trading - but while the former is a passive activity, the latter is a rather active task. In social trading, an online community of traders shares tips, tricks, and strategies for successful trading among each other. Knowledge sharing is the primary element of social trading in which the community profits off the learning shared among each other. In copy trading, you simply follow successful traders, and their trades get automatically executed in your account.
What factors should you consider before choosing a trader to follow?
You should consider the following factors before choosing a Master Trader to follow:
- Investment portfolio
- Risk management tactics
- Trading strategy
- Past performance
- Number of followers
What types of copy trading are there?
There are two types of copy trading: Automatic and Semi-automatic copy trading.
What are the pros and cons of copy trading?
Pros | Cons |
Automated trading | Market risk |
Learning experience | Execution risk |
Portfolio diversification | Dependence on successful traders |
Risk management |
|
What do you call an expert trader you copy on BitDelta?
An expert trader who is copied by new traders is referred to as a Master Trader on BitDelta.
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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