Copytrading: Drawbacks that Few Could Have Ever Heard of
Copytrading is one of the most popular forms of investing in cryptocurrency. The story begins far in the past, when some traders started using certain algorithms allowing them to copy the trades of the most successful traders. Today copytrading may be summarized as follows: big-time players share their knowledge with investors and earn additional income. These latter, in turn, copy positions of experts and earn money in the market. This can be done both automatically and manually.
If you find the term “social trading " on the Internet, keep in mind that we are talking about the same copytrading, but with the addition of a social element. I.e., a trader communicates with investors through a blog / chat on the platform.
Who Fits this Way of Earning Money?
This type of investment will be of interest to any newbie. This is a new start on the road towards wealth and financial independence.
Traders who have no thorough knowledge of cryptocurrencies may also consider an innovative investment methodology as a way to enter the market.
Advantages of Copitrading:
- this type of trading involves a low entry threshold: you can start with $100;
- it does not require any special knowledge, only API keys;
- no transfer of funds needed: the funds are under your control.
Nevertheless, it's not all butterflies and gumdrops with this type of trading.
Drawbacks
Despite the fact that copytrading allows you to earn with minimum awareness of the market, there's strings attached to this. Since our priority is customer safety, we cannot fail to mention the disadvantages of the method.
- copying other people's trades does not guarantee success, because the market is constantly changing. You will always get less profit than the master account. This is the very feature that people often don't want to talk about..
- you're completely dependent on third-party software, which you, as an investor, cannot control. Where are the servers of copy trades located? How is the code written? What methods of error handling and synchronization are used? What does the third-party software do if the master account transaction is executed on the market, but yours is not? You'd only be guessing.
- when the number of participants is increasing, trading loses a lot of its efficiency. 100 investors connected to the 1 trader will give less efficiency than 10 investors.
- due to slippage, transactions may not be executed at the same price as they were opened on the master account.
- a trader providing an account for copying is most likely not risking his money.
Final Words
Thanks to copytrading, you can make the best of the research, experience, and decisions of other players. However, this type of trading has its drawbacks. Now you are well aware of them. The important thing to remember here is that no matter what you are promised, copytrading does not guarantee 100% income. It all depends on the price of virtual assets and the profitability of the strategy.
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