Copy trading, what is it? An overview of advantages and pitfalls

Many people have heard of the concept of “copy trading,” but not everyone truly understands it. Simply put, copy trading is copying the trading decisions of other traders, allowing their operations to be automatically executed on your account. It sounds simple and very tempting—especially for those who don’t have time to monitor the markets or lack trading experience. But the reality isn’t so rosy.

Who is suitable for using copy trading?

This method mainly attracts two types of people: first, novice traders who want to learn from experienced traders to get started quickly; second, busy professionals who don’t have time to analyze the market themselves and prefer passive profits. If you are one of them, copy trading is indeed worth trying. But the prerequisite is that you understand its mechanism and risks.

Advantages: A must-have lazy tool

Save time and effort — This is the most obvious advantage of copy trading. No need to monitor the markets daily, no need to learn complex technical analysis, just sit back and earn. For investors with limited time, this is a lifesaver.

Avoid FOMO emotions — Fear often leads to wrong decisions. Following experienced traders can help you get rid of panic buying or chasing highs, and learn their discipline and rationality.

Flexible customization — Most copy trading platforms allow you to adjust position sizes, risk parameters, and fund allocation. In other words, you can maintain control while leveraging others’ wisdom.

Full transparency — You can see detailed data of the traders you copy: profit status, risk level, portfolio composition. This allows you to make informed choices based on your risk tolerance and investment goals.

Disadvantages: Looks great but hits hard

Limited learning space — Continuously copying just one trader over the long term means missing out on learning other strategies and methods. Worse, you will never truly understand the underlying logic of the crypto market, technical and fundamental factors, which is detrimental to your long-term growth.

No guaranteed profits — This is the harsh reality. Past performance does not guarantee future results. Market volatility, unexpected events, strategy adjustments—these can all lead to losses. Even “star traders” can have a bad run.

Relying on others’ judgment — Your returns depend entirely on the level of the trader you copy. If they make wrong decisions or experience a loss period, you will be “affected” too. That’s why choosing traders carefully is crucial—deeply researching their historical performance and risk management skills.

The origins of copy trading

This concept is not new. Around 2005, copy trading and its “cousin”—mirror trading—officially entered the trading industry. They originate from automated trading (also called algorithmic trading). When traders started sharing their trading histories, this idea gradually evolved into what we see today.

The difference is: copy trading involves directly copying every trade of the trader; mirror trading, on the other hand, combines strategies from multiple traders to generate unified trading signals.

Fintech company Tradency launched its mirror trading system around 2010, allowing traders to upload their strategies and trading histories. Other users could directly copy all trades of these strategies. With technological advances, platforms began allowing traders to connect their personal accounts directly, so all trading activities could be automatically synchronized with followers without additional strategy descriptions.

Since 2010, copy trading has become increasingly popular among online brokers, especially welcomed by traders lacking experience and seeking guidance.

Final advice

Copy trading is an interesting tool, but not magic. It can help you save time and avoid emotional decisions, but also brings issues like stagnation in learning and lack of guaranteed risk management. The smartest approach is: treat it as an auxiliary tool rather than your sole reliance. Before choosing traders, do thorough research, regularly review your copy portfolio, and adjust flexibly according to your risk tolerance.

Remember, there is no absolutely safe way to make money in the crypto market, and copy trading is no exception. Do your homework, make cautious decisions—that’s the key.