What is copy trading and how can you make money with it?

Centralized cryptocurrency exchanges like Huobi, OKX, Bybit, Phemex, Pionex, and others provide the copy trading service, as do trading platforms like eToro, TraderWagon etc.

What exactly is copy trading?

Copy trading is a type of social trading as well as an additional investment portfolio management tool. Beginner traders can duplicate expert traders' trading strategies and execute them automatically in live markets while profiting on the exchange. Duplicating an experienced trader's operations entails automatically opening or closing positions of the same assets with the same types of orders (for sell or buy, with leverage, and so on).

The cost of copy trading and how profits are distributed

The commission amount for orders placed during copy trading will be the same as it would be during normal trading. Thus, it will depend on the trader's level, which is established based on monthly trading volumes. There are no extra fees, and most platforms do not charge a subscription fee for the copy trading service; however, the trader does pay a percentage of the profit from successful trades. 10% of the profit from each closed deal will be withheld in favor of the seasoned trader whose approach the copy trader used.

For example, if a trade generates a total profit of 100 USDT, an experienced trader will receive a commission of 10 USDT, whereas a copy trader will see a 90 USDT increase in their trading balance.

To begin copy trading, simply deposit funds into a trading account designated for this type of trading in any cryptocurrency or stablecoin (USDT), and then select an experienced trader. It's important to remember that copy trading from sub-accounts is usually prohibited on most trading platforms. 

A large number of crypto pairs are available for copy trading, such as BTCU/SDT, ETH/USDT, ETC/USDT, XRP/USDT, SOL/USDT, ADA/USDT, DOGE/USDT, LTC/USDT, DOT/USDT, and EOS/USDT on the OKX exchange.

Orders placed during copy trading are subject to the same limitations as orders placed during traditional trading. This also applies to the level of leverage, which remains unchanged.

Selecting an experienced trader and copying their strategy

To select an experienced trader, review the leaderboard and rank them according to a specific criterion, such as the amount of profit received, the highest percentage of successful trades, PnL (return on investment), and so on.

Exchanges provide a variety of filters and criteria for selecting an experienced trader.

If a certain trader is of interest, it is possible to view their profile. This includes detailed information on their trading history, assets in their investment portfolio, and the number of followers. It is possible to observe a seasoned trader for a while without engaging in copy trading. A master trader can be subscribed to and followed just like on social media. 

Traders to follow

After watching several leading traders, it is worthwhile to compile your own short list of candidates who are leaders based on specific indicators and compare the key data of all the traders who made it into this group. This approach will ultimately help determine the winning trader. When you've made your final decision, simply click the “Copy” button next to the chosen trader to begin copy trading.

There are a number of factors that could make following the selected trader impossible:

• They either stop trading or the platform cancels their status as a master trader.
• The maximum number of followers has been reached.
• The trading account of the potential copy trader has insufficient or no funds at all.

It is possible to set the maximum amount for one order as well as the total maximum amount for this type of trade in the copy trading settings. There is also a limit on the maximum number of positions per day during copy trading (on some exchanges, it reaches 50).

Copy trading has the following advantages:

• Easy. Copy trading is a simple and easy way to learn about trading on exchanges. It is not necessary to understand and perform technical or fundamental analysis when copying the trades of professional traders.
• Settings flexibility. Each copy trader determines the maximum amount for a single trade as well as the total number of positions.
• Emotional stability. The percentage of unsuccessful trades is much lower in copy trading than in independent trading. Traders who are inexperienced are likely to experience negative emotional reactions when there is a significant number of losing trades, which results in even more poor trading decisions. Copy trading protects traders' nervous systems as copying the trades of experienced masters results in a higher winning ratio.
• Transparency. The statistics of experienced traders are open and transparent. Nothing is hidden.

Copy trading is a helpful tool for beginners and novice traders. It should be considered by those who lack experience, knowledge, or are not psychologically prepared to trade independently on the cryptocurrency market.