What is copy trade? Assess opportunities and risks when using copy trade

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2021-03-23 04:02:04

What is copy trade?

Copy trade The action in which another trader copies a trading position of an experienced investor into his or her portfolio.

Often the act of copy trade or copy trade is common in less expert traders in one forex market, electronic money, …

Or simply they do not have time to follow when placing a certain trading position.

Before starting to copy trade, you need your own analysis of your trading position. Raise the issue of risk and the amount of capital that can be committed to the transaction.

Because even if you choose an experienced trader to copy trade, your capital is still at risk of losing as usual.

How does copy trade work?

Copy trade connects a portion of your portfolio with the trader’s portfolio of your choice.

After making a copy of the trade, all the open positions in their portfolios will be copied to your account. Accordingly their future positions are also reproduced by your account.

how copy trade works

For example: On a Bitcoin exchange and other cryptocurrencies. You have found a good investor and want to copy that person’s portfolio.

Watch now: What is Bitcoin? [Thông tin toàn diện nhất về đồng tiền ảo BTC]

The definition of a good investor for a novice is usually an account with large profits with a huge win rate. However, there are downsides if you do fomo this.

When copying trade you need to consider setting some of the following parameters:

  • Copy amount: The amount you want to place for each copy trade. When you choose the copy amount of 1000 USDT, the more investors you copy with the order, the amount of your order is only 1000 USDT. And I recommend using only 10% of capital for safety.
  • Maximum amount of copies per day: If the volume of transactions exceeds this number, no more copies will be made.

And there are many parameters to consider depending on the trading platform that supports copy trade.

Benefits of copy trade

Copy trade is a form of portfolio management. The goal is to find other investors with high experience and high returns. The copy process allows the trader to monitor other traders’ strategies.

Trading copies can be useful for traders who don’t have time to keep track of the market. In general, copy trading focuses on short term trading. But there are a number of different strategies used to generate revenue.

While it can be profitable, there are risks involved, and traders should keep in mind that past results are not a guarantee of future returns.

Diversification of investment portfolios

Copy trade indeed helps you to diversify your portfolio. It can be understood that it helps you to make more money in the market.

Like, instead of buying Bitcoin, you prefer to divide your capital to invest in other coins like Ethereum (ETH), Ripple (XRP), …Copy trade too, should not focus all the investment on a trader. You should split up among other traders to make a copy.

To diversify the selection of traders can be based on different basis. For example, if you want a short-term investment or test-day profit goals, consider copy traders using different timeframes.

Copy trades with large teams have a complete pattern. Most of them form a subscription model. In it as a participant that model you have to pay fees to copy trade each month.

The risks of copy trade

The biggest risk a trader will face is market risk. If the strategy that a trader is copying fails and loses money.

Traders also face liquidity risks. If the instruments they are trading are experiencing poor liquidity during market volatility.

Finally, the trader may face a systemic risk if the traded product experiences a sharp drop. And there are many risks that you need to directly experience to fully understand.

Criteria to choose a Trader to perform Copy trade

Traders provide consistent results by the time

That is, a trader offering a 3% profit per month for 1 year is much more suitable than a 6 month profit trader of 10% and a 6 month profit of 7%. When you look at the historical performance chart, consistency is shown that the chart is going up.

Minimum transaction history per year

The longer the trader’s trading time, the better. This allows you to evaluate your performance under any market conditions.

Number of followers

The more people who follow that trader, the better. This is a major advantage from a trading network as it allows you to benefit from what traders are analyzing and entering. However, you shouldn’t use this as the standard element.

Look at the trader’s descriptive strategy and profile

See if they have a clear strategy? Is this a trader or trading company? Consider whether they are analyzing themselves and entering orders or using a trading bot.

If a trader is using an automated system and strategy, try to determine if they are monitoring the system. No bots are perfect and they are based solely on historical facts.

Hence, no one can predict how a system might perform under future market conditions, but professional traders will know when to use manual trading.

Consider how they set their stops

Those who do not know what the stop loss is, read it this lesson.

Consider how they set the stop level? Where is it located? Stop loss is used to manage the risk of a trade.

The stop loss determines the level of risk (ie how much money can be lost on the order). No stop loss means that there is no limit to the level of risk, which can be dangerous.

Look at Win rate

This doesn’t have to be discussed. Often a win rate as high as 80% or more will be an extremely interesting number to attract copy traders.

The frequency of orders

Follow them and listen to what they say to compare. A trader regularly updates his market strategy and opinion, the more likely they will follow the market and will be able to react and adjust the strategy immediately accordingly.

And there are many more criteria you need to experience to know. Rather than just looking at the win rate, fomo follows it.


Currently there are many platforms that allow copy trade. Each platform has different powerful and advanced copy tools. When participating, you also need to evaluate the overview to make the right choice.

Immediate profits cannot shape future results. When deciding to copy trade a certain trader, you need to consider the possible risks that come with it. So, also consider using capital appropriately.

Moreover, copy trade is also a form of portfolio diversification. If you know how to use it properly, it will avoid liquidity risks or related to market risks. It also gives you a substantial amount of profit out of your pocket. Thanks

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