What is copy trading?

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Copy trading began to become popular quite recently, when more and more people became interested in cryptocurrencies and stock trading. Not very experienced or those who want to make a profit from their audience, explaining to them about copy trading, position this system as a “loot” button: click it once, then you do nothing and get a regular profit. Is it really so? Let’s try to figure it out together with you.

How copy trading works

If translated literally, everything will become clear already at this stage: “copy” means copying, and “trading” means trade (most often, cryptocurrency trading is meant). It turns out copy trade. This is practically the case, because the essence of copy trading is that a person chooses a trader and independently or with the help of an automated system enters into the same transactions in the same position.

Illustration for an article about copy trading.

In fact, you can not think at all and completely entrust your balance to the trader. If a special tool is used on the exchange or various sites, then it is configured only once, after which operations will be automatically copied until the available deposit is exhausted. Exit from transactions can be both together with the trader, and according to your own parameters.

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Types of copy trading

There are two main types of copy trading. The first option not used as often and not as hyped. Its essence implies that you find a trader yourself, he tells you his biography, provides a history of transactions and says that if you conditionally subscribe to his paid channel or pay him a fixed rate, then he will share all the transactions with you, in which enters

Then you receive the information, process it in time and decide whether to copy this agreement to you. If so, you can use any exchange or trading instrument, opening short or long orders (depending on the signal). We can say that this is not a type of copy trading, but rather work on signals. However, here everything depends on how quickly the trader himself conveys information and how quickly you make a decision.

This approach has one significant disadvantage – you will need to always monitor messages, be in touch and promptly perform all actions in order to catch the moment when you need to repeat the deal. The second variety looks much more profitable.

The second option is actively integrated into various exchanges and allows both traders and their subscribers to earn. This is a customized automatic copy trading tool. You register on the exchange, go to the copy trading section, choose a suitable trader, sign up for him, make a deposit and start waiting.

As soon as this trader enters a new deal, the system will automatically copy it. At the same time, the leverage and entry price will be exactly as you set it. Now you just have to wait until your take profit/stop loss works or the trader himself exits the deal. The risks here are huge, as you never know how a person will behave. But I will tell you more about them when I list the advantages and disadvantages of this copy trading system.

What is the benefit of the trader to share his tools with others?

Let’s answer the most popular question so that it becomes immediately clear why copy trading exists at all. There are many people who are engaged in trading and have it as their main source of income. If it goes well, and the statistics are excellent, they can all register on the exchange and become a master.

Now their statistics will be displayed on the page with other trading masters. The better it is, the higher the position in this list. People who want to try copy trading go to the list and choose a master. They subscribe to it and pay 10% of each successful transaction (this is a standard rate, it may differ on different exchanges or sites).

An example of receiving income from subscribers in copy trading

It turns out that if a trader successfully closes several trades, he receives not only his profit, which he would have received anyway, but also interest from each subscriber. On exchanges, the number of subscribers can be different and also adjustable. Sometimes it even reaches 500 or 1000 people – imagine how much a trader will earn just from interest from all his subscribers for one successful transaction.

Table with the best traders when choosing them for copy trading

Sometimes exchanges hold tournaments between trading masters and various activities, which only attracts new users. So far, the leader in the number of such events is ByBit, and we will talk more about this exchange when we analyze an example of setting up copy trading.

How to start copying other people’s deals

Now I want to use a simple example to show how entry into copy trading is generally carried out and what is required for this. I will consider automatic trading with the help of exchanges, since it is the easiest option for beginners. Of course, first of all you will need an account on one of the exchanges that supports copy trading. I will be using ByBit.

First, you need to create an account and enter the first money in USDT (you can also in another crypto, but then exchange it for USDT, since this token is used to open transactions). $100-150 will be enough to set the entry price for each trade at 15 with 2x or 3x leverage (more on leverage and entry price in the next tutorial).

I would also like to note that ByBit does not require KYC account verification, i.e. confirmation by providing personal documents. At least when it comes to using copy trading and withdrawing your earned funds. Some other operations are not available without verification, but not about them now.

Let’s figure out what options ByBit provides for copy trading. I note that they are practically identical for other exchanges.

  1. After creating an account or even before that, you will need to open the copy trading section and look at the masters. The first positions are always those whose statistics are better than others. Click on a wizard tile to learn more about its metrics.Go to the master trader page on the ByBit exchange to connect copy trading

  2. In the panel on the left you can see the number of successful and losing trades, the total number of orders, profit and loss. All this can be analyzed and understood how effectively this trading master trades.Viewing the statistics of the wizard for connecting copy trading on the ByBit exchange

  3. It is also important to emphasize the presence of the “Current agreements” block. It shows all the orders in which this master is currently sitting. ByBit fights with those who do not close unprofitable deals and tries to sit on them for a very long time so that they do not affect the statistics. With a small deposit, it is not profitable for the subscriber, because he simply will not be able to enter into new deals while any are open. If you see a large number of unprofitable trades with a trader that have not yet been closed and have been hanging for a long time, I would advise you to think twice before trusting him with your deposit.Viewing the active operations of the trading master on the ByBit exchange

  4. Let’s say you have chosen the right candidate for you. Now it’s time to set up the copy trading itself. To do this, click the “Copy” button opposite the wizard’s name.The button to copy transactions of the trading master on the ByBit exchange

  5. Enter your appropriate leverage from 1 to 10. Some exchanges even allow you to specify 50x, but this is too risky a strategy. Leverage implies that you will enter into the transaction, conditionally, with 10 dollars, and the exchange will lend you a multiple of the amount. Accordingly, if the leverage is 2x, then the transaction will be opened for $20. You will get twice as much profit, but also lose twice as much if the trade turns out to be unprofitable. Your leverage can be anything and not coincide with the one used by the trader himself.Introduction of leverage for copy trading on the ByBit exchange

  6. In “Order value” you specify the price of one transaction. Try to make sure that your deposit is enough for at least 15 trades, as the trader can regularly open new orders to average the buy or sell price to minimize losses.Entering the cost of an order for copy trading on the ByBit exchange

  7. The most interesting take-profit and stop-loss. You can specify when you want to automatically exit trades. It can be 20% profit or 30% loss – whatever values ​​suit you. If you leave the fields empty, there will be no automatic closing of orders. They will end only when you manually press the button or the trading wizard will do it himself.Adding custom values ​​to complete a copy trading transaction on the ByBit exchange

  8. If you do not want to trade a certain pair, remove it from the list of contracts, but at the same time consider that it may be the main pair of the trader, and you simply will not enter into any trade. First, check what the chosen master sells.Disabling some pairs in copy trading on the ByBit exchange

  9. All that remains is to transfer USDT from one balance to the copy trading balance to build your capital.Entering the available balance for copy trading on the ByBit exchange

  10. Finally, check all the settings and click “Next” to confirm the launch of the automatic copy trading tool.Confirmation of the start of copying transactions on the ByBit exchange

I’m not giving any advice on settings, just describing how it works on this exchange. Do everything at your own peril and risk, given the peculiarities of such a specific trading tool. Decide for yourself which leverage to set, how much money you are ready to invest in it and whether you need to set take profit and stop loss yourself.

ByBit allows you to subscribe to only one trading master, but other exchanges often do not impose such restrictions, so you can spread your deposit among different people and follow their actions. To view statistics, go to the “My Deals” section.

Go to review your trades in copy trading on the ByBit exchange

First, you will see the total capital, which will include your deposit and profit. If the transactions are negative, the deposit will decrease over time. The available balance shows how much money is still involved in transactions. Net profit can be both positive, in the case of successful deals, and negative, if something goes wrong.

Viewing information about the copy trading balance on the ByBit exchange

All copied agreements will appear in a separate table below. You will see the pair, the value of the order, the entry point, information about the take profit and stop loss, as well as the percentage of profit or loss that is at the moment. There will still be a button to exit the deal if you choose to do it yourself rather than waiting for your wizard to complete it.

Viewing active copy trading operations on the ByBit exchange

On another tab, you can track already completed deals to understand the percentage of profits, total income or loss, as well as learn about the commissions that you will pay both to the master and to the exchange itself.

Review of completed copy trading operations on the ByBit exchange

Advantages and disadvantages of copy trading

Above I have tried to describe in as much detail as possible how copy trading works and how to set up your account if you decide to try it. In conclusion, I suggest making a short summary of the advantages and disadvantages of this system.

Pluses:

  • No need for trade knowledge. You only need to choose a trading master to trust him with your money. You will not have to trade independently or monitor the market.

  • Automation. You have seen above that the settings need to be set only once, after which all that remains is to monitor trades, record income or losses.

  • Passive income. If you choose the right strategy, calculate all the risks, set the appropriate settings and find a proven trader, copy trading can become a source of passive income without having to do anything yourself.

Cons:

  • Lack of control. You cannot decide for the trader what trades to enter and when to exit. Yes, you can set a percentage loss limit, but that won’t protect you from a streak of bad luck that could result in you losing your entire deposit.

  • Not understanding who is on the other side of the screen. In most cases, you only see the trader’s statistics and his avatar. You don’t know who is behind the profile and what he has up his sleeve. Perhaps tomorrow the trader will want to drain his deposit or will take many reckless steps. This can lead to an instant loss of profit or the entire balance.

  • High risks. This item brings together the previous two. This kind of trading is very risky and you always need to be prepared for the fact that you can lose your entire balance at any moment.

Copy trading is a rather ambiguous scheme of passive income, which works for some, and only takes money from others. I will repeat once again: make decisions only at your own discretion and invest in such areas only the money that you are not afraid to lose.

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