When it comes to trust management, copy trading is very popular. Nevertheless, there is risk involved. Let's figure out what this trading method is and why it is better to give up on it.

 

Definition

Copy trading is a form of investment when professional traders allow investors to “mirror” trades through special programs. Successful traders who have something to learn from are most in demand. However, they usually charge a commission for their services.

At first glance, copying positions seems profitable, and most importantly, simple. But when you look at it, it's not all rosy.

 

Drawbacks of copy trading

Strategy

Let's start with the strategy you want to follow. Decide in advance on the risk/return ratio you are ready to go for. If you are connected to a trader, then your account management system will be led by another one, without a chance to work independently. Strategies of the trader can be both safe and risky. Remember that he is not responsible for your account and only keeps track of his money. In addition, he may have many accounts. And he is not afraid of liquidation of one of them. The same cannot be said about you.

Let's give an example: by buying assets on one account, a trader can compensate for the losses on another. However, your account may not have access to such a system.

Investment horizon

A trader can buy crypto for the long term, while you are ready to hold for a week or a month. As a result, you will have to close the position with losses ahead of time.

Wallet size

A trader can manage an extensive account and open many positions, but your money can quickly run out. What is more, in the case of a drawdown, the trader can find additional financial resources and invest them in the account. It may be difficult for you.

Technical problems

Now and then the system of copying positions simply does not keep up with the trader. Traffic overload or problems with the Internet are to blame. As a result, your trades will be executed at a less favorable price.

Diversification

The best option is to start with a small sum managing the wallet. Don't put all your eggs in one basket. Remember that diversification is the golden rule for any type of investment.

Study the system of copy trading. There are a lot of them on the market now, but not all inspire confidence. Don't forget about users' feedback.

Check out:

  • the speed of copying transactions/ the system work;
  • the cost of the program;
  • the equipment requirements.

Take the choice of a trader with all seriousness. Pay attention to the following factors:

  • the main indicators of the trader, maximum profit, loss;
  • the strategy he adheres to; the use of leverage and its size;
  • account management modes that are enabled on the trader's accounts;
  • trading method: independently or with automated algorithms. If a person turns to fast algorithmic trading, will your copy trading program keep up with him?

Result

Copy trading is one of the most effective ways to increase profits. But, unfortunately, it is not a universal way to earn a tremendous amount of money. Be aware of the risks of this method and thoroughly examine the info about it.