Follow the Leader: What Copy Trading Is and How to Make Money From It

In November, the cryptocurrency exchange OKX will launch spot copy trading, which will allow copying and automatically executing trades in real time.

ForkLog, together with OKX, explains copy trading and its advantages for both novices and experienced traders.

History of copy trading

Copy trading is a trading strategy in which a user (copy trader) copies the trades of the lead trader (lead trader).

Before the internet, traders shared strategies via newsletters. Later they began reporting their trades in chats, mailings and on closed forums. Those wishing to replicate the actions had to read the trader’s message as quickly as possible and execute the trade manually.

In 2005, Tradency created an automated trading system called Mirror Trader. In it, traders shared trade histories and posted their own trading strategies. Other users could copy positions at their discretion.

Soon, Mirror Trader added the ability to connect trading accounts directly to the platform and automate the process of opening and closing positions.

In the 2010s copy trading began to gain popularity among brokers. In 2012, the company eToro registered the trademark CopyTrader and became a popular platform in this segment.

As the crypto industry grew, copy trading began to be offered by various exchanges, including OKX.

How copy trading differs from mirror trading and social trading

Copy trading evolved from mirror trading, which involves copying a trading strategy rather than individual trades: developers share trading histories, and traders choose and repeat the most profitable algorithms.

Mirror trading enables combining several trading strategies. Users of copy trading platforms copy trades without access to the strategy itself.

Social trading is a broader concept, involving the exchange of trading experience and various ideas on social networks. Typically, traders issue recommendations to followers, who either follow them or study them without executing trades. This can be regarded as the main distinction from copy trading, where users repeat all of the leader’s positions.

It is also important to distinguish copy trading from discretionary management. In the latter case, an investor entrusts the deposit to someone else rather than simply copying trades.

Advantages and drawbacks of copy trading

At first glance, copy trading seems an excellent solution for beginners: you only need to find a successful trader, and experience in trading is not required.

Ironically, selecting a truly experienced lead requires understanding market mechanics yourself. Past results do not guarantee future results: a trader with high returns may incur large losses if capital-management rules are not followed.

Before subscribing, you should study the lead’s open positions and trading history to understand their potential risks, and doing so without trading experience is impossible.

Among the advantages of copy trading are:

• automation of trading. Users do not need to spend time monitoring the market and delving into the nuances of trading;
• additional profit. Lead traders can monetise trading experience;
• mitigation of impulsive and irrational trading decisions. A user can avoid FOMO, by passing the \”burden of responsibility\” to a more experienced trader.

Drawbacks of copy trading:

• copy trading does not teach trading. Merely copying others’ trades does not give you real trading experience;
• copying trades is not a guarantee of profit. Even the most successful traders may incur losses at various times in the market;
• you pay for subscribing to a lead trader. Each platform offers its own terms. Typically, users give up a small portion of the profits earned from copying lead traders’ trades.

How the copy trading platform works

In October, the OKX crypto exchange opened access to copy trading on derivatives and announced the launch of the spot platform in November.

Lead traders will trade on the spot market with zero fees from November 6 to December 7, will receive a double profit-sharing rate in the first month of operation, and will be able to participate in a PNL competition with a prize pool of more than 15,000 USDT.

At the top of the copy trading page on OKX are available:

• a list of subscriptions (for copy traders) and subscribers (for lead traders);
• profit and loss from copy trading in USDT;
• your PNL as a lead trader.

In the \”Copied\” tab you can view the list of trades copied from the leader.

Below is the \”Markets Panel\” with lead-trader rankings, sorted by seven-day PNL or by the total assets under management (AUM).

In the \”Feed\” displays trades of traders you are subscribed to, and in the \”Leaders Table\” is the list of leads with the best PNL of all time.

To copy trades, click the \”Copy\” button in the lead trader’s profile and specify the position size — fixed (in USDT or another asset) or proportional to the original order.

You also need to set the maximum total amount — the funds available for investing across all orders.

In the dropdown list \”Additional\” you can set the margin mode, contract and leverage settings, take-profit and stop-loss for one order, as well as a total stop-loss — the amount of loss in USDT at which copying will cease.

Each lead trader has their own profit-sharing coefficient — the percentage of income from copying trades. Its size depends on the AUM over the last 90 days.

On OKX, lead traders receive from 8% (AUM up to 100,000 USDT) to 13% (AUM above 1 million USDT) of copy trading profits.

To become a lead trader, you must complete full verification on OKX and have at least 500 USDT in your trading account.

Conclusion

Copy trading is a good option for passive income for those who do not have time to monitor the market. With it, novices can avoid emotional decisions by delegating trade execution to more experienced traders, while those traders can earn additional profits by sharing trades with other users.

However, there is always a chance that a strategy that was profitable for a past trader may not work and may incur losses. Keep that in mind and do not invest more in copy trading than you are willing to lose.

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