“Does copy trading actually work?”. This is a question many newbie crypto traders will have at some point in their trading journey.
With crypto trading becoming more and more popular, we are now seeing a lot of ads for cryptocurrency copy trading services.
Many people see copy trading as the holy grail. “I can make money from trading cryptocurrencies without actually doing anything? Awesome!”.
But it’s not as fantastic as it seems.
What is Copy Trading?
Before we get into the heart of the matter, let’s have a quick refresher of what copy trading is. Copy trading is the type of trading where you – the trader – copy someone else’s trades with a simple click of a button.
You will literally be taking every trade they take. Quite often people won’t be following just any regular cryptotrader.
With copy trading, you will be following some kind of ‘guru’ or ‘expert’. Most of the time they will have a big following already.
Copy trading can also be done through signals. With signals, you sign up to a service that will send you an alarm, alert, tweet, or email whenever a trade has showed up.
It is up to you to then go and take the trade. So, whilst that isn’t quite as automated as copy trading and you have more control, it is very similar.
What’s in it For Them?
It’s quite easy to see what’s in it for you. But what’s in it for these guru’s?
Well, for every trader that decides to copy their trades, they will get a commission. It depends on the broker how this commission is worked out, but one thing’s for certain:
The more followers they have, the bigger the commission they get.
As for signalling services, usually they will charge a fee for people to gain access to it. When someone offers a signalling service it’s not always connected to a broker.
This means the guru’s won’t really have an official track record and no real numbers on how many people follow them.
Why Copy Trading Doesn’t Work
Since guru’s make more money the more followers they have, they won’t take bad trades on purpose. If their win rate is bad, nobody is going to want to copy them.
In essence, that means you should be able to make a good profit from copy trading. Unfortunately, that’s not how it works.
For one, your account vs the guru’s account is going to be completely different. You could wipe your entire account with only a few losses, whilst they will be perfectly fine.
They might have a lot more funds available than you do. If they end up in a losing streak, they can just deposit more and keep going.
Newbie crypto traders usually won’t have a big amount of funds available for trading, so a losing streak could mean the end of your trading career for a while.
Next up, their risk profile is going to differ from yours. These days it’s a bit easier for you to avoid following someone who has a higher risk profile than you.
Some copy trading platforms assign a risk profile to their guru’s so you can find someone who has a similar risk profile as you.
However, new crypto traders often don’t know the importance of a risk profile. They will follow whoever seems to have the biggest win rate and that’s it.
Short Term Solution
Lastly, one of the biggest problems with copy trading is that it’s just not a long term thing. If you only trade by copy trading, what are you going to do when the traders you copy suddenly disappear?
You won’t know how to trade yourself. You do not have a back-up plan. Suddenly, your steady side-income or maybe even your main income, is gone.
And because crypto trading is so new, you probably don’t know much about cryptos either! What a disaster.
What You Should Do Instead
Keep yourself informed! We cannot stress this enough. It is the one fail-safe way to make it as a cryptotrader.
You will have full control over everything. You can use the copy trading as a temporary crutch if you want to, but at least learn from it.
If you find that you like what your guru is doing, find out what it is exactly that they are doing. Learn their strategy so you can adapt it to your own needs.
Even better, instead of following what they are doing and learning their strategy, go out and find a strategy yourself.
“I don’t have time for all of that!” you might say. Don’t worry, here’s a great article on how to find time for trading. It’s written for forex traders, but it can be applied to crypto traders as well!
Not only are you going to have to educate yourself on the strategy side, you need to learn about cryptocurrencies. You don’t need to know everything, but it is important to at least know the basics.
We’ve got you covered! You can find our basic course here.
Still asking yourself if cryptocurrency copy trading actually works? Here’s our definitive answer:
Stay away from copy trading and make your own fortune!