What is CopyTrading? Main Advantages and Disadvantages

Fri Sep 08 2023

copytrading crypto trading bots

In recent years, as technology has advanced and access to financial markets has become democratized, a growing trend has emerged - copytrading. Primarily seen in stocks and Forex trading, this method has quickly found its way in cryptocurrency, where new traders are lured by the promise of replicating the successes of seasoned professionals, by copytrading profitable crypto trading bots.

However, just as any other trading method, wether you’re trading manually or using an algorithmic cryptocurrency trading platform such as Aesir, copytrading does not come without its own set of limitations. Knowing what to expect when copying another trader, or their crypto trading bot can help you make better decisions by having a better understanding of how copytrading works.

What is Copytrading?

Before we dive deep, let’s lay out what copytrading really means. In essence, copytrading allows individuals to mirror the trades of experienced traders or their trading strategies, automatically. When the expert makes a move, the same move is applied, proportionally, to the funds of the copytrader. Many platforms have integrated this feature, and it’s especially gaining traction with crypto trading bots.

Advantages of Copytrading

Delving into the Limitations of Copytrading

Copytrading, especially in the volatile world of cryptocurrencies, is not a guaranteed road to success. Here are some considerations:

Timing Differences:

When you start copying a strategy, particularly one from algorithmic cryptocurrency trading bots, you’re not copying already opened positions. For instance, if a trader you’re copying had bought Bitcoin at $10,000 and it’s currently at $15,000, you won’t benefit from that rise. You’ll only start copying their new trades from the moment you begin.

Some platforms such as eToro allow users to copy existing positions, naturally entering the market at the current price, and not the original entry price recorded by the strategy you’re looking to copy. Other platforms choose not to copy existing positions and only copy new positions.

Order Fulfilment Delays:

Your order is likely to be filled after the original creator of the strategy. In markets that move rapidly, like cryptocurrency, even a few seconds can make a significant difference in entry points. Hence, the returns of the copytrader might not perfectly align with those of the primary trader. On our algorithmic crypto trading platform, Aesir we specifically designed copytrading to be to be inherently fair for the strategy owner as well as the copier.

Lack of Flexibility:

Often, to maintain the integrity of the copytrading strategy, individuals are limited in their ability to modify trades. This rigidity might not suit all, especially if market conditions change rapidly. This was an important issue for us to fix early on. On Aesir you’re not only copying a crypto trading bot, you’re cloning it entirely and running your own trading bot with the same settings. That way you can make changes to it, improve on the existing formula, or allow other people to copy your bot.

Reliance on Single Strategy:

Solely relying on one trader or one bot can expose you to risks if their strategy starts to falter. The old saying of putting all your eggs in one basket still applies.

Key Takeaways

Copytrading can be a valuable tool, especially for beginners or those who lack the time to constantly monitor the markets. However, like any tool, it’s essential to understand its functionality and limitations fully. As the world of cryptocurrency continues to evolve, strategies must be adaptable. The dynamism of crypto markets demands vigilance, whether you’re trading on your own or replicating the moves of an expert.

The best way to learn is by doing, so why not create an Aesir account now and get started with copytrading within minutes. You’ll be able to run your strategies in Paper trading mode so that you first test that the strategy you’re copying actually works for you!


©DEM Group 2022