Copy Trading: Your Ultimate Guide to Copy Trade in Crypto

Gianluca Lombardi7 September, 2023

identical crypto traders

What is Copy Trading?

Copy trading is a form of online trading that allows you to automatically open and close the same positions opened and managed by selected individuals, usually experienced traders or investors.

It is also known as social trading or mirror trading, letting you follow the trading strategies and copy the trades of successful “signal providers” on a cryptocurrency exchange or platform.

Instead of manually opening and closing your own positions, you simply subscribe to a trader and all their live trades are automatically copied to your account. This hands-off approach allows you to benefit from the knowledge and experience of seasoned cryptocurrency traders without having to actively trade or manage positions yourself.

Some key benefits of copy trading cryptocurrency include:

  • Requires less knowledge or time commitment
  • Lets you learn from experienced traders
  • Potential for passive income from copied trades
  • Manage risk by copying multiple traders

How Does Copy Trading Work?

trader copying another trader

Cryptocurrency copy trading involves a few key parties:

  • Signal providers/copy traders – Experienced traders who open positions and make trades. Their strategies and trades can be copied. They earn a commission on follower profits.
  • Followers – Individuals who subscribe to and copy signal provider trades. They profit when trades are successful.
  • Exchange/platform – Provides the social trading environment and copy trading tools. Facilitates the copying of trades between traders and followers.

The copy trading process typically works as follows:

  1. Traders share trading signals and strategies on an exchange or website that supports copy trading.
  2. Followers review trader profiles and statistics to find profitable investors to copy.
  3. Followers subscribe to copy selected traders.
  4. When a trader opens a position, the same trade is automatically opened in the follower’s account.
  5. All subsequent trade updates like closing positions are mirrored to the follower’s account.
  6. If trades are profitable, the follower shares the profit with the copied trader as commission.

So in essence, the actual trading is done by the signal provider, while the follower passively copies all activity using some of their capital to mirror the trades.

Copy Trading Platforms and Exchanges

There are a growing number of copy trading apps for cryptocurrencies, forex and other assets:

  • eToro – Leading social trading platform that supports copy trading major cryptocurrencies, stocks, ETFs, and CFDs.
  • Bybit – Crypto exchange that offers automated trading tools and a trader leaderboard.
  • Bitget – Provides copy trading for crypto including automated tools and quantitative rules.
  • Avatrade – Trading platform with trading features for crypto, stocks, indexes, and commodities.

These platforms offer web-based and mobile apps to give users full access to their copy trading network. Some features they provide include:

Which is the Best Copy Trading Platform?

Overall, eToro, Bybit, Bitget, and Avatrade all offer strong social trading services, with some notable differences:

  • eToro focuses on simplifying copying many human traders across stocks, crypto, ETFs etc. through an intuitive and social interface.
  • Bybit provides more risk management settings when copying selected human crypto traders. Leaderboard and statistics focused.
  • Bitget takes an automated approach for hands-off copy trading via trading algorithms and bots.
  • Avatrade has a dashboard to easily search, filter, and copy the best human crypto traders based on transparent performance stats.
  • eToro and Bybit have more social features for interacting with communities of traders you can copy.
  • Bitget and Avatrade focus more on execution and trader stats rather than social features.

If you’re interested in diving into the world of copy trading, be sure to check out our comprehensive guide on the Best Copy Trading Platforms to find the perfect fit for your trading needs.

How to Get Started as a Crypto Copy Trader

Interested to start copy trading? Here are some steps for beginners:

  1. Choose a platform – Select an exchange or website that provides crypto copy trading activities. eToro, Bybit, and Bitget are leading options to open a trading account.
  2. Analyze traders – Review trader statistics like profitability, risk score, drawdown, and more. Analyze their track record and performance.
  3. Follow multiple profiles and copy their trades. Avoid putting all funds with one trader.
  4. Allocate capital – Determine how much of your portfolio to allocate to copy trading. Start small.
  5. Use auto tools – Utilize automated tools like copy trading bots offered on platforms. Makes copying seamless.
  6. Monitor activity – Check your account regularly to monitor replicated trades and performance.
  7. Learn and adjust – Pay attention to successful traders and strategies. Fine tune who you copy and allocation amounts.

The easiest way to get started is to use a platform with automated trading tools. This reduces the steps required to find, evaluate, and copy top-performing crypto traders.

Pros and Cons of Copy Crypto Trading

Pros Cons
Leverage skills of pro traders Potential losses from risky profiles
Passive income from successful trades Still exposed to crypto volatility and risk
Low time and knowledge commitment Reduced control over individual trades
Learn trading strategies commissions on profits reduce gains
Diversify across multiple traders Following inexperienced traders
Access automated trading tools Dependence on platforms and technology

Risks and Drawbacks

While the benefits are appealing, copy trading does come with some risks to consider:

  • Traders you follow may make losing trades leading to losses. Conduct due diligence.
  • Following inexperienced traders with poor risk management can amplify losses.
  • Automated trading has less oversight and control compared to manual trading.
  • Fees and commissions charged on profitable trades reduce your overall profits.
  • Copy trading depends on the availability and reliability of the platform.
  • You are still exposed to general cryptocurrency market risks like volatility.

Tips for Successful Social Trading

Here are some best practices for copy trading cryptocurrency:

  • Review stats – Evaluate traders based on returns, risk metrics, followers, tenure, etc.
  • Check track record – Examine the complete trading history and past performance.
  • Follow multiple profiles – Diversify across several traders to reduce risk.
  • Start small – Allocate a small portion of capital when starting out.
  • Use stop losses – Use stops to limit losses from losing trades.
  • Adjust allocations – Change amounts copied based on performance. Reduce poor performers.
  • Watch closely – Stay on top of your account activity and replicated trades.
  • Learn – Study why successful traders make profitable trades to improve own knowledge.

Copy trading is generally legal in most countries, though the regulations surrounding it may vary. Some key legality considerations:

  • In the US, copy trading is legal as there are no specific regulations prohibiting it. Traders must report profits as capital gains.
  • In the UK and EU, copy trading is legal and regulated under MiFID II requiring platforms to disclose risks.
  • In Canada, copy trading platforms should be registered and traders report profits as capital gains.
  • In Australia, copy trading is allowed when the platform holds an AFSL license from ASIC.
  • In Asia, regulations vary – Singapore allows it but China prohibits copy trading.
  • Platforms and traders must adhere to local KYC, AML laws, privacy laws and trading compliance.
  • Taxation of profits depends on country. Follow appropriate capital gains reporting.

So in summary, copy trading cryptocurrency is generally legal and permissible in most developed countries provided platforms and traders adhere to relevant local regulations and tax laws. As always, consult a professional for guidance about copy trading legality in your jurisdiction.

The Bottom Line – is Crypto Copy Trading Right for Me?

Copy trading offers an innovative way for beginners to get started in cryptocurrency trading while benefiting from the success of more experienced traders. By replicating positions automatically, followers can generate passive income with a hands-off approach. However, you should take care to manage risk by analyzing users statistics, allocating capital wisely, and using tools like stop losses. While auto trading has its risks, the potential rewards make it a strategy worth exploring if you want exposure to seasoned traders.

Other Helpful Cryptocurrency Trading Strategies and Resources:

  • Leverage Trading: Understand the mechanics and risks of trading with leverage in our comprehensive Guide to Leverage Trading.
  • Spot Trading: Learn the basics and advantages of spot trading in the crypto market with our Spot Trading Guide.
  • Crypto CFD Trading: Delve into the nuances of trading Contract for Difference in the crypto space in our Crypto CFD Trading Guide.
  • Automated Crypto Trading: Discover how to set up and optimize automated trading systems for 24/7 trading in our Automated Crypto Trading Guide.

Copy Trading FAQs

Copy trading is legal in most countries, though regulations vary. Platforms should adhere to local compliance laws. Profits are subject to capital gains taxes.

What are the advantages of copy trading?

Benefits include leveraging skills of pro traders, earning passive income from trades you copied, low time commitment, learning trading strategies, and diversifying across multiple traders.

Can anyone become a copy trader?

Many platforms allow experienced traders with a solid track record to become a “Popular Investor” or “Top Trader” providing signals to copy. You must apply and be approved after successful trading performance.

What is social trading?

Social trading allows you to follow and copy successful traders through online communities and platforms like eToro. You benefit from collective wisdom.

What is Forex copy trading?

Forex copy trading allows you to duplicate the trades of experienced forex traders automatically. Most major forex brokers offer copy trading services.

What is mirror trading?

Mirror trading is another term for copy trading. Your account mirrors the trades from a signal provider in real time, allowing you to copy positions seamlessly.

What are trading bots?

Trading bots are algorithms that automate buy and sell orders. They can be also used as Copy trading software in platforms like Bitget allow subscribing to bot strategies to copy automated trades.

How to find good traders to copy?

Analyze performance stats like profitability, risk metrics, followers and tenure. Check their track record over at least 1 year. Follow multiple top performers.

Author: Gianluca Lombardi

Gianluca is the editor-in-chief of this site. A finance graduate, he is an active trader who has tested all trading platforms and knows all their secrets. Technology is his passion; he spends much of his free time in the metaverse. Gianluca loves learning new things, researching, discussing and writing about technology, especially when it comes to cryptocurrency and blockchain technology.