What is Copy trading?

In simpler terms, copy trading is a trading strategy provided by many cryptocurrency exchanges. A trader can use trading software to automate a trade’s buying/selling process by following another trader’s activities. This tool is most helpful for novice traders who, at the beginning of their crypto trading journey, are unfamiliar with all the essential concepts of the crypto market’s mathematics, analytics, and market strategies. These traits are most helpful for any trader on which they base their buying and selling decisions.

Copy trading is not only for novice or inexperienced traders to try and follow. Experienced traders can reap the benefits of this tool as well. It can also benefit anyone who doesn’t want to spend hours analyzing and devising a strategy for their next crypto trade and save time by following the decisions of other traders. The exchanges provide a list of traders who have a higher success rate in their rates, primarily based on their ROI (Return on Investment). From that list, a person who wishes to copy the trades of other successful traders can choose and then set the parameters of their trade identical to those they are copying.

A fundamental example of copy trading is, suppose, one trader spends 10% of their money buying a particular coin like BTC. A person using the copy trader software would spend the same percentage of 10% on buying the same coin. The other parameters, purchase amount, leverage percentage, and take profit/stop loss, can also be set according to a trader’s priority on the copy trading software. So while a person is still following another person’s trades, they can still have control over some of their own decisions.

Copy Trading vs Mirror Trading

Mirror trading is a sub-category of copy trading. In mirror trading, rather than mimicking the exact moves of a trader, the community as a whole device a trading algorithm that everyone follows in their next buying/selling of a cryptocurrency. So the trade size and volume of traders may differ from one another. They would still be collectively earning a profit on trade following the same algorithm.

Copy Trading vs Social Trading

Social trading is another sub-category of copy trading. In this method trading community bands together to discuss the various possibilities and probabilities of a particular coin or several coins. They share their strategies relating to which currency they think everyone should buy and then carry out their operations according to the result of that discussion. However, this process doesn’t involve any automation, and every trader would have to acquire a trade manually.

Copy Trading on Bybit

There are simple steps that a trader must follow if he wants to copy trade on Bybit

Step 1: Signup or login into the Bybit exchange

To sign up on the Bybit exchange, a user will have to press the signup button, where they will be required to enter either an email account or a mobile number along with a password for the safety of their assets. The users will use the email id/mobile number later to access their accounts at any desired time. After successfully creating their Bybit account, they can log in and start trading on different cryptocurrencies.

Step 2: Fund your account on Bybit and Select Copy Trading

To copy trade on Bybit or to take any other transaction, for that matter, a user must have sufficient funds in their crypto wallet. Users can transfer funds into their crypto wallet by either buying cryptocurrency using their credit card, P2P trading, or third-party payment apps. Once they have the funds in their derivatives accounts, they must transfer the desired amount into their copy trading account. To open their copy trading account on the Bybit app, the user will have to select the copy trading option on the homepage of the Bybit mobile app.

Step 3: Select from the list a trader to follow

Once users have pressed the copy trading option they will be directed to a page where they will see a list of different copy traders and their trading stats.

Some indicators can help users in selecting a trader to follow such as:

ROI (Return on Investment):

A trader with a higher ROI is always a preferred choice for everyone to follow. The higher ROI of a trader is always a positive sign meaning that he has a solid grasp of the crypto market, and his decisions on acquiring a trade have resulted in him getting good profit margins.

Drawdown:

Drawdown refers to the decline in the value of a profit from its peak value. It doesn’t necessarily point out how much loss a trader has taken but rather how much less a trader has taken profit from a trade compared to the maximum profit value he could have taken. In trading, drawdown value shouldn’t be allowed to increase by more than 20%. If a drawdown value increases from 20%, then this indicates that that particular trade should be closed. Traders with lower drawdown percentages are considered the best examples to follow.

Step 4: Set the trading parameters

Following are the parameters that the users (if they desire) can modify in copy trading.

Fixed Margin or Position Size multiplier

As described in the image below, in fixed margins mode, traders can enter a Fixed Amount with which they want to trade. For example, if they select an amount of 100 USDT, then whenever a trader opens a trade, the copy trading software will open the same trade with the fixed amount of 100 USDT and not more than that. 

The term Position Size Multiplier implies that a trader can enter a specific percentage of their choice, which is a multiple of the amount of the trader they are copying. So, if a trader selects that he wants to enter a trade with 10% of the total trading amount of the person they are copying, then they will be opening a position multiple of 0.1x.

Leverage Settings

There are two types of leverage settings that the users can set when copying a trader. Fixed Leverage means that if a trader opens a trade with a leverage of 15x, then the copy trading software, irrespective of the set amount, will open a trade with the same leverage size of 15x. The opposite of fixed Leverage is Custom Leverage, in which traders can set their default setting for different trading pairs. If a trader opens a trade of BTCUSDT with a leverage size of 50x and the copy trading software is instructed that they should open the same trade with a leverage of 20x for the BTCUSDT pair, then the software would not exceed the set limit of 20x.

Order Confirmation

Once a trader sets all the parameters, the final step is to agree to the Bybit Copy Trading Agreement and press the Copy Now button. After that, whenever the trader they are following opens a trade, the copy trading software will replicate their actions on a user’s behalf.

Keep up to date with open trades

After going through all the steps of opening trade on copy trading software, traders must keep up to date with how their trade is fairing in the current cryptocurrency market. If the trade has yielded traders a profit, they would be delighted with the result. If they don’t see the desired effect or think they have achieved sufficient profit, they can close their trades manually as well. Traders can view open trades on the My Copy Trades tab on the Bybit application, and from the User Center tab, traders can close their trades manually.

Advantages of Copy Trading

• It is an automated process. Once the traders set the trade parameters to follow, the copy trading software will take care of the rest once the trader (which other traders are copying) opens a trade.
• Copy trading also relieves a trader from spending more time on crypto exchanges, looking over the volatility of the market, and devising their trading decisions accordingly.
• Copy trading allows beginner-level traders to follow the footsteps of successful traders without going over the need to study the crypto market and its intricacies, which they can go over at another time. It will allow them not to miss a lucrative opportunity if it arrives in terms of making a profit in the cryptocurrency market thanks to the option of copying successful traders.

Disadvantages of Copy Trading

While copy trading looks like an excellent opportunity for traders to put in minimum effort and get the best possible rewards, it also comes with certain risks.

• If traders choose a trader with a good ROI record but use risky strategies, those copying him can also be susceptible to huge losses.
• There is the risk of liquidation as well since you are just simply following what other traders are doing and not formulating any strategy of your own. So if you don’t pay constant attention to your trading operations and at the same time incur a loss on open trade, then you can lose all your money if you don’t close the trade on time or if you haven’t set a stop loss on your open trade.
• Copy trading cannot be successful all the time. The cryptocurrency market is highly volatile, and sometimes all the computations, permutations, and calculated probabilities cannot prove correct. So if the trader that you are copying incurs a loss, you would also be incurring the same loss. The past results of successful traders are not indicative of their future performance, so you should not be greedy in copying any trader and should start with smaller margins to see their performance. 

Final Verdict

Copy trading is an easy way of making crypto trades. Copying the trades of experienced traders lets you automate your trades and also, at the same time, allows you to learn how the market works. Make sure you do some research before you start to follow a trader to increase your chances of success.