Copy Trade: An Overview With LBank.
KEY TAKEAWAYS
- Spot copy traders tend to hold orders for twice as long as futures traders, primarily engaging in medium to long-term trading.
- Copy trading reduces time spent on the exchange by 23%.
- Among copy traders, 93% of those involved in futures trading and 82% involved in spot trading achieved profitability, with cumulative gains.
Copy trading has emerged as one of the most highly sought-after services within the retail trading industry. While having found considerable traction in traditional markets, its presence in the crypto area is still in its nascent stages, gradually gaining momentum.
The inception of copy trading can be traced back to the social trading practices prevalent during the early Internet era, where seasoned traders generously shared their trading strategies on forums. Later the boom was fuelled by the popularity and success of Reddit traders. Copy trading only streamlined that approach with technology, allowing new traders to execute the trades of experts instantly.
Although the practical application of tools such as ChatGPT currently falls short of achieving absolute precision and reliability, there is a growing recognition of the significance of automated solutions that integrate human intelligence. Copy trading, as a prime example, is witnessing a surge in popularity within the crypto market, underscoring the pressing need to simplify this intricate process, particularly for individuals new to the realm of trading.
What Is Copy Trading?
The concept of copy trading involves investors replicating or mirroring the trading activities of professional traders to adopt the same positions as the experts they are copying. This approach offers a convenient and user-friendly method for investors to participate in the financial markets, as transactions can be executed automatically and instantaneously.
Copy trading primarily caters to short-term trading strategies, with a particular focus on day trading and swing trading. By engaging in copy trading, investors can leverage the resources and expertise of experienced traders, including their insights, trading experience, research, and risk management strategies. This allows novice traders to benefit from the knowledge and skills of established professionals, potentially enhancing their trading outcomes.
Copy Traders Favor Derivatives Market Over Spot for Trading:
Copy trading in the derivatives market remained more prevalent compared to its counterpart in the spot market. Specifically, futures trading accounted for 91% of all copy trading transactions, with spot comprising the remaining 9%. The growth of the crypto derivatives market share in 2023 has pushed the demand for innovative instruments such as automation tools and AI algorithms to enhance the trading experience. According to CCData in April, cryptocurrency derivatives trading volume on centralized exchanges reached a new all-time high, while the market share of crypto derivatives trading rose to a record 77.6%. In June, derivatives trading volume on CEXs increased by MoM of 13.7% to $2.13 trillion.
It is worth knowing that new users in 2023 exhibited a stronger inclination towards copy trading compared to those trading back in 2022. The growing trend for copy trading tools can be traced back to the traditional investment market, where novice traders traditionally entrusted their money to experienced brokers with proven reputations. Users may feel more comfortable knowing that their investments are being managed by experienced individuals who can analyze market trends and make informed decisions. Human traders can also adapt to changing market conditions and employ strategies that may not be easily programmable into bots. Additionally, human traders can provide personalized insights, advice, and communication, which can enhance the overall trading experience for users.
Although this statistical trend is visibly pronounced, it is important to acknowledge that the LBank copy trading feature for spot trading was only introduced at the beginning of the year. Consequently, further data collection and analysis will be necessary to obtain comprehensive quantitative indicators regarding the adoption of copy trading among newcomers in late 2022 and early 2023.
How Does Crypto Copy Trading Work?
Crypto copy trading basically works with automated software that typically mirrors the expert trader at all times. The whole process of setting one up takes time and effort, but once it is perfectly set up, it becomes effortless to use. You can either configure the software to invest the same amount as the front trader, or you can customize and tailor your strategy to invest only a fraction of their funds.
The key is finding a trader with good signals. There are tons of trading signals out there with good performances, but you will have to dig a bit deeper to filter out the good ones. Check how long the signal has existed. Look at the trading history of each signal. How steep was the highest drawdown of the signal? These are the things you should take into consideration before you connect to the signal.
Good signals with big profits are often using high leverages. So, if you are on a low budget, say less than $1,000, your exchange won’t open the trade. That’s because your capital to trade is pretty low. You will need to customize the leverage from big to small. For example, the trader uses 150x leverage; you can customize and reduce the leverage to about 20x, depending on the crypto exchange platform you are using. Conversely, if you find a good signal, but the leverage is small, you can increase the leverage.
Let’s go a step further. You can choose more than one trader to diversify your portfolio. Once you have found several good traders to follow, you can allocate your investment and determine the chunk of funds you want to allocate to each lead manager. Also, it is essential to note that these lead traders charge small fees to enable users to copy their trades. The cost usually fluctuates around 8% of the profit made. Thus, the system works to feed subscribers and earn lead traders even more money.
Many people might find this concept a bit strange, but it is not. Truth is, it is time-tested. Copy trading has been around since 2007, and it is widely recognized by the Financial Conduct Authority, European Securities and Markets Authority, and other regulatory organizations. Since it is well-regulated, you can be rest assured you are implementing a legitimate trading method.
Benefits of Crypto Copy Trading
- Convenience: The first benefit of using copy trading strategy for crypto is convenience. Consistently tracking market prices can be burdensome. Copy trading essentially removes this stress, as it automates your process.
- Eliminates FOMO: Since the software is doing the work for you, you get to invest your funds based on statistics instead of your usual emotions that can judge your trades. Copy traders can focus on other tasks while the software trades for them.
- Portfolio Diversification: Using other traders’ strategies makes your portfolio more diverse. Instead of sticking to a single method, you can evaluate traders’ approaches to the market and tailor them to build your own system.
Drawbacks of Crypto Copy Trading
- Restrictions: Your trades are only as good as the settings of your software and the trader you follow. If the trader makes a profit, you do, too; however, if they make any losses, you also tend to be affected by that.
- Slippage: Since your trades are always behind a lead trader, your trades can get canceled out in a highly volatile market, preventing you from making the exact results as the lead trader.
- Copy trading Fees: You may need to pay a small fee, usually around 8% of your profits, to the lead trader for allowing you to copy their trades.
With all being said, you can begin your Crypto copy trading journey on LBank here.
Wrapping Up
Overall, crypto copy trading can be a simple, convenient, and effective way of entering crypto trade positions. Copying trading strategies from expert traders can automate your trades at the same time, while learning more about the crypto markets. However, as with any other crypto trading strategy, you must always do your personal research before getting started with crypto copy trading.
