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Since the invention of the first cryptocurrency, it has witnessed unprecedented acceptance and influx into many spheres of society. However, acceptance and influx aren’t the only things the crypto world has experienced. There has also been a great reprisal from big corporations because of its ubiquity and decentralized nature.
But like a bull that will never back down, the crypto ecosystem has continued in its stride. One of the major contributing factors to this is the relatively novel trading strategy called ‘social trading.’ Without question, it has served as a bridge for crypto into seemingly impossible sectors, and if you stick around, I will tell you all you need to know about it and how it can benefit you as a retail investor. Let’s get started!
What’s to come
- What is crypto social trading?
- How copy trading started
- Why social trading the key to faster crypto adoption
- Who is copy trading for?
- How to kickstart copy trading today
- How to select the trader to copy
What is Crypto Social Trading?
Crypto social trading is a way of investing in crypto where other people’s analysis and data are used to inform your investing decisions. Social trading gives people instant and consistent access to information generated by other traders, allowing newcomers to profit from successful trades without knowing much about the world of cryptocurrency investments.
Crypto social trading adds a new layer to crypto trading and allows you to seek help from people in your field. This way, newbies can learn quicker in a social setting and collaborate with like-minded traders for mutual benefit.
Brief History of Copy Trading
In 2005, mirror trading gave birth to copy trading. Traders duplicated certain algorithms established through automated trading at first. Developers made their trade histories public, allowing others to mimic their tactics. A social trade network arose from this setting, and traders eventually started duplicating deals in their trading accounts rather than following a strategy.
Why Social Trading Is The Key to Faster Crypto Adoption
According to an article on Investopedia by Rakesh Sharma, ‘retail investors, who powered the first bull run in cryptocurrencies in 2017, are making a comeback into the ecosystem. And unlike last time, when they exited after booking profits, retail investors might be into crypto for the long haul this time around.’
Because of social networks, Bitcoin has become a popular investing tool among mainstream investors. The crypto bubble is starting to burst, and data from several exchanges indicates that individual investors are booming.
There’s a ready market for cryptocurrency-related knowledge, and many individuals are filling it on social media. There’s not much you can’t learn from YouTube and the numerous crypto-related Facebook groups. Crypto’s knowledge rush is the outcome of brands and people scrambling to satisfy this apparent demand. This is a major step forward, as the amount of valuable crypto-based content has increased dramatically.
Who is Copy Trading For?
Some say copy trading is merely the bicycle’s training wheels that you use until you become a master. I beg to differ. Copy trading can be beneficial for both expert and inexperienced traders.
It is a way for beginners to learn the crypto market in-depth and grasp how the system operates. They then transition to manual trading once they gain confidence and acquire the necessary experience and skills. And for experts, it gives them the avenue to step away from their screens now and then, as copy trading is more or less automated trading. In essence, copy trading is for you if:
- You’re new to crypto trading and want to see expert traders in action.
- You don’t have time to keep an eye on the market all day or for the most of the day,
- You’re merely interested in trading part-time rather than full-time,
- You’d rather have someone else trade on your behalf while you keep the winnings.
How to Kickstart Copy Trading Today
The primary motivation for copy trading is to duplicate the profits of a successful investor. You can call it an investment with fewer possibilities of costly errors.
But the million-dollar question is, is it really that simple?
Well, yes and no. Before you decide to copy trade, you need to wrap your head around the processes involved. Without much ado, here they are:
Step 1: Creating an account on a reputable stock and trading platform. Most platforms give you the freedom to keep tabs on the data of whoever you want, and you get to decide the criteria by which you wish to select the trader to follow.
Step 2: Set how much you are willing to risk financially. This will be done after picking the trader you wish to shadow. As advice, don’t go all out—at least not at the beginning. Start with a small percentage of your disposable income, and have it in mind that experts, yes, even the one you’re copying, don’t always get it right. Everyone faces the danger of losing money now and then.
Step 3: Observe. Now that the deed is done and your money is in the balance, all you can do is observe. Some trading platforms will automatically trade your stock pick with the people you’re mimicking. However, if you don’t want that, you could opt for the manual approach of copy trading by examining what your peers are buying and selling in their portfolios.
How to Select the Trader to Copy
One of the most critical factors to consider when copy trading is who to mimic, as their success will ultimately determine your financial position. While you may be tempted to go with a trader who is on a brilliant run, you might want to dig a bit deeper. Keep an eye out for someone with a track record of consistent performance, who shares your values, investment time frames, and risk tolerance.
- Look at how much actual money (not demo accounts) other people have invested with them.
- Negative returns are clearly unacceptable. However, while very high returns may appear enticing, keep in mind that yearly returns of 70% or more are uncommon and are most likely due to luck or excessive risk.
- Another consideration when selecting the finest social trader to follow is the number of transactions made by the signal provider. A large number of closed trades, such as 80 or more, is a positive sign. A high value indicates that the trader is an expert, and their success is not due to chance.
- Look for traders whose risk scores do not fluctuate substantially over time. Aside from having a constant risk score, it should preferably be as low as practicable while still allowing for large gains. We recommend picking a risk level between 0 and 5, but this largely depends on how conservative you are as a trader.
- Examine their open trades. This information should be visible in the trader’s profile on your social trading site. Open trades, just like experimenting with stop levels, have a massive impact on your available equity.
- Professional traders know to play the hand they are dealt by efficiently using leverage stop levels before losses become intolerable. A trader with few open trades and a 60-80% winning percentage is more likely to do well in the long run than a signal provider with a winning ratio of 90% and over 10 active trades.
Conclusion
Crypto social trading is quite exciting, and I really couldn’t do justice to it in a few words. You can get more details on how it works and how to get in from Trality’s ultimate guide.
