Preface

The best trading strategies can be learned by mimicking the actions of a successful trader.

The automated system of real trading not only increases profitability but also liberates you from the fear of an unknown market. To learn more about how copy trading works, continue reading.

What is Copy Trading?

Copy Trading is a type of investment strategy in which you do not have to choose and operate your own investment strategy, but instead copy someone else’s trading strategy. This idea began in the foreign exchange market in 2005 and has since spread to all financial markets.

In general trading situations, investors must use fundamental and technical analysis to develop trading strategies; however, personal judgment may not always be able to accurately predict market price trends, and there is still some risk. Most investors lose money trading in the long run.

Aside from the inability to grasp market trends due to inexperience with analytical tools, the most common issue is the investor’s mindset. Even if a suitable and good trading strategy is developed, the investor cannot stick to his heart and execute it. Instead, he frequently changes his mind as the market shakes and breaks the rules at will, potentially increasing losses. You can avoid human-made mistakes if you use Copy Trading’s systematic automated trading.

How does Copy Trading work?

Copy Trading operational principle

Copy Trading is based on the lead trader’s number of adjusted positions and the number of copying transactions, if the number is less than the minimum copying number of futures, it is not copied. The number of copying transactions (rounded down) = the proportion of copying * the number of adjusted positions. Then calculate the copier’s available trades according to the user’s available funds and the set future leverage multiple. If the number of copy trades ≤ the number of available trades of the copier, the copy will be successful.

Without considering the copy multiplier, leverage system, and single constraints, the copier will copy the position change of the lead trader until the copy fund is not allowed. When the lead trader reduces the position of the corresponding copying future, the copier will have the corresponding available funds.

Example of Copy Trading

Note: The example does not factor in transaction fees and funding rates.

If the lead trader has a total of 1000U of funds, of which 100U is used to buy the A currency future, with a leverage of 100 times. Then the value of the constructed position is 100 * 100 = 10000U；

The total number of copy funds for the copy user is 100U, with the copy multiplier set to 0.1, and the leverage set to 20 times. Theoretically, the copy position of the copier following the above transactions is 10000 * 0.1 = 1000U in total. The copier needs to invest a margin of 1000/20=50U to copy, then the remaining available funds of the copier are 100 - 50 = 50U;

Subsequently, the lead trader used 200U to buy the B currency future, with a leverage of 100 times. Then the value of the position is 200 * 100 = 20000U;

At present, the copier has a remaining available fund of 50U, with a leverage of 20 times and a maximum position value that can be built of 1000U. If the copier wants to continue to follow the lead trader to buy B future, the copier can only build a position of 1000U. So far, the copy funds are all used up.

At this time, when the price of both A and B coins has risen by 10%, and the trader closes the with position, Earnings of the trader: (11000-10000) + (22000-20000) = 3000U; Earnings of the copier: (1100-1000) + (1100-1000) = 200U.

Potential problems in Copy Trading

In practice, you may discover that the leverage of the copiers and traders is inconsistent, which results from the use of different capital, leverage multiplier, and so on. Furthermore, the full trader is no longer able to follow the order. Or if the copier himself is also a lead trader, then he can not follow the single himself. Finally, Copy Earnings of Copiers = Historical Earnings - The Fee Deducted from the Current Position - Profit Sharing.

Principals and Principled in Copy Trading

Copy investor：

The copy investor is a principal and needs to set additional trading parameters. You can choose the order according to the investment style or profitability of the trader with the order after the commission. It should also be noted that the share of revenue set by the lead trader is the cost of investment for the follow-on trade.

Lead Traders:

This is the identity of the principal trader, who can set their own revenue share according to the range set by the platform, which will also be differentiated into different levels of traders according to the number of followers and the amount range, and the maximum revenue share limit is also different. The minimum limit is 1%.

Copy Trading process and details

The principle of copy trading construction and composition is described above, while the actual process of following the orders goes like this:

Enter the Copy Trading page - Select a trader - Sign the copier agreement - Set copy parameters - Start copying. At this point, it is important to note a copy agreement needs to be signed before your first copy. For more information, please see the Gate.io Copy Trading-Copiers Guide.

Copying Detailed steps

1.Enter the Copy Trading page.

2.Select the trader, click the trader’s profile photo to enter his page, and check the trader’s data.

3.A copy agreement needs to be signed before your first copy. So please agree to and sign the agreement.

You can choose from the following three following modes according to your preference:

1.Quick Copy Mode:

Set the copy amount and leverage multiple, and the rest of the parameters will be executed according to the default parameters. Then click “Quick Copy”. The pop-up box will remind you to confirm the copying parameters, then you can start to copy.

2.Advanced Copy:

Click [Advanced Copying Mode] to enter the details. You need to fill in the Basic copy parameters. If the user does not set the custom parameters of the future separately, all the copies will be carried out according to the basic copy parameters. Another customized copying parameter is that the user can select the type of contract to participate in the copy.

Futures with custom copy parameters can be executed according to the custom parameters, while the rest of the futures will be executed according to the basic copy parameters. The copy multiplier can also be selected as a fixed multiplier or adaptive multiplier.

3.Full copy mode:

The copier completely follows the trader in accordance with his leverage multiple, cross margin/isolated margin mode, and selects all the futures led by the trader. Then he follow the trader to open/add a position or close/reduce a position in accordance with the trader’s fund proportion, which will make the copier consistent with the trader in ROI.

In the order information of [Copy Mode], you can click the [Close] button on the current order to close the position, which then will be closed at the market price immediately.

Copier’s Margin

Every time you follow a trader, the funds of the spot account will be transferred to the sub-account in the form of a virtual sub-account, and the sub-account will only follow the trader to do copy trading. After the copy trade, it will be liquidated. After deducting the share and transaction fees, the remaining funds will be transferred to the spot account.

How to check the profit of a copy?

In the order information of [Copy Mode], you can view the copy profit of each copied future (without deducting the profit-sharing).

In the copy traders’ list of [Copy Mode], you can view the copy income data of the traders you follow.

How to close a position?

1.Manually stop copying

The copiers can perform the [Stop Copy] operation on the current copy trader in the current copy trader management in [Copy Mode], and it will no longer follow the traders and immediately close a position for the current future at the market price. Also, the profit-sharing settlement will be carried out and the remaining funds will be returned to the user’s spot account, with the profit share of the trader issued before 10:00 am the next day.

2.Automatic stop copying

The user can customize the time interval of 1-30 days ([30] by default ) if the copier does not make a trade at the specified time (e.g. 30 days), the copy will be stopped, and the copied future will be automatically closed at the market price.

Advantages and Notes of Copy Trading

Advantages

Clearly targeted:

The platform provides a list of top-performing traders to choose from, along with their historical win rates and records, and users can find traders to follow based on the style they want to learn. You can also diversify your capital across multiple portfolios to track market trends and spread risk.

Improve trading skills：

Copy trading allows you to learn from experienced and profitable lead traders. You can learn professional knowledge and skills to find your own investment strategy by imitating the strategy behavior of the lead trader.

Diversification：

The Copy Trading platform provides a wide range of trading options, including various portfolios and asset mixes. If you happen to select an underperforming trader, you can also select multiple trade strategies with orders to take profits or offset losses in different market types.

Time-efficient:

Using Copy Trading eliminates the need to spend long hours monitoring market trends and allows the order system to replace man trading.

Caution: There are numerous risks in market trading, as well as numerous unavoidable uncertainties, such as the general environment of systemic risk or market risk, and typically, the greater the reward, the greater the risk. The impact of financial decisions on assets is also a major risk of copy trading.

Highly volatile and fast-moving markets:

Market risk refers to the fact that market trading prices frequently do not move as expected, and when the market moves in a volatile manner, it can frequently result in losses if funds are involved. Furthermore, the cryptocurrency market operates 24 hours a day, 365 days a year, with no concept of “market closure” and no price fluctuation limit. So the price fluctuations are relatively high.

Trading history of a lead trader:

Platform data can be used to select a solid profit with a single trader, but each trader’s trading practices are not the same, so finding suitable for themselves or wanting to emulate the object of learning often requires time and market testing. Furthermore, while a period of significant performance with a lead trader is not a long time of smooth sailing, it is recommended that investment users select a few more with a lead trader subject.

The liquidity of a specific trading pair：

If the market requires sufficient liquidity, such as some relatively cold trading pairs, the transaction will have a slippery spread or be difficult to deal with, which investors must consider when selecting investment targets.

Conclusion

Copy trading allows any trader to achieve fully automated trading behavior by replicating the trading strategies of market-proven leading traders. If you choose an experienced, stable, and profitable lead trader or diversify your investments and choose multiple lead traders for live trading, you may end up with better profits than if you choose to trade alone.

Copy Trading not only reduces risk but also avoids irrational psychology when operating your own investments. According to research, investors often can not comply with their own pre-established trading strategy because of the volatility of the market, and lose more than expected.

But the biggest advantage of Copy Trading is this. You do not have to monitor the market situation, so as not to have to control the random opening or cancellation of the stop loss, you just need to follow the order settings entrusted to the lead trader. However, we recommend that the copier is careful to set their own copy parameters and chooses a lead trader with similar capital to follow, so as to avoid the situation of profit fall. Finally, you also need to pay attention to the above-mentioned risks. Try to choose a trading pair with sufficient liquidity as well as consider the division of income and commission expenses, which must be put into sufficient available funds to avoid trading suspension.