Crypto traders face lots of risks and challenges when starting their crypto trading journey. This is primarily because crypto trading strategies are very risky, and the chances of traders suffering from loss are significantly high.
To decrease the risk in crypto trading, new traders can mirror the trading strategies used by experienced traders. This is exactly what’s done in mirror and copy trading.
Let’s take a look at how mirror trading works and how it can be applied to any crypto market to generate profits with minimum risks.
Introduction to Mirror Trading
In mirror trading, you have to copy the market and moves of an experienced trader who possesses a proven track record of winning trades. The moves of the experienced trader are precisely copied, and their profits are copied for mirror traders as well.
Automated trading bots are used in mirror trading to precisely and immediately mirror every trade made by the target master trader. Algorithms are used in mirror trading, and a trader has to set up the trading account, move funds into it, and set up the mirror trading bot to start the whole process.
Mirror trading was first publicly introduced in the early 2000s. This was made possible because of the technological advancements in the field of forex trading. Mirror trading was first used in the forex and the stock market. With the introduction of cryptocurrencies and the increasing popularity of crypto trading, mirror trading is now also used in crypto mirror trading.
Some of the biggest crypto trading platforms are now enabling mirror trading to expand their user base.
Mirror trading in the crypto industry was only limited to institutional traders in the starting days. With time, mirror trading became largely dependent on automation through mirror trading bots. Moreover, the cost of mirror trading software decreased, and it made crypto mirror trading more accessible for newbie cryptocurrency traders. These days, mirror trading has become a common strategy in trading markets like forex, stocks, and cryptocurrencies.
How does Mirror Trading Work?
To start mirror trading, users must find a crypto trading platform that supports mirror trading. After setting up your mirror trading account, all you have to do is choose a master trader you want to mirror.
Master traders’ accounts and trading history are public, and the data is transparent. This is done to help crypto mirror traders make the best choice when it comes to choosing their master mirror trader. By letting mirror traders mirror their trading strategy, master traders are given a percentage of their profits by the platform.
Once a mirror trading account is set up, the follower’s account automatically and precisely replicates every trade made by the master trader’s account. All the user has to do is follow the master trader, and the master will do all the analysis, while the user will give them a percentage of their trading profit.
A software or mirror trading bot is used to establish a connection between the follower account and the master trader.
Whenever you have to choose mirror trading, there are lots of factors you should consider before starting. One of the key factors you should consider before stepping into is how fast the crypto market can adjust itself and how the master trader needs to adjust their strategy accordingly.
If the master trader fails to adjust their trading strategy according to the rapid price fluctuations in the crypto market, both you and the master trader will suffer from heavy losses.
Moreover, there are only a few mirror trading chances in the crypto market.
To date, there are only a few crypto trading platforms that fully implement mirror trading into their user interface. Since the competition is still relatively low, the fees for mirror trading are usually high, and the discount opportunities are few as well.
Mirror Trading vs Copy Trading: Which One Is Better?
Mirror and copy trading are somewhat the same, but there are a few key differences. Copy trading also requires the follower to follow a master trader. Your account will automatically mirror every trade made by the master trader. One key feature of copy trading is that it leaves some of the final decisions to the copied trader.
On the other hand, mirror trading is fully automated and doesn’t provide the trader with any decision-making power. Every trade of the master trader is precisely copied, and the follower can’t decide anything. Copy trading accounts need to be adjusted now and then to keep the cash flowing and the trades successful.
In addition to the flexibility, copy trading is provided by more crypto trading platforms.
Returns
Whether you choose to copy or mirror trading, the returns you get will largely depend on your master’s trading strategy and how they manage their risk profile. Both methods work by allowing the follower to replicate the master’s strategy. This is why both of these methods usually produce the same returns and involve the same risks.
Since mirror trading is offered by only a few platforms, the fee they charge is still very high. This eats into the mirror trader’s profits in the long run.
On the other hand, copy trading involves low trading fees. Platforms like Bybit provide free copy trading services. This means the copied trader can keep all the profit, and the returns are significantly high.
Flexibility
Mirror trading, by its very nature, and less flexible as compared to copy trading. If you’re a trader who likes some control over the trading process, you might want to prefer copy trading. That’s because, in copy trading, you have the choice of following or not following specific trading moves made by your master trader, a luxury not available in mirror trading.
During copy trading, if you think that a trading step suggested by your master trader is too risky or incorrect, you can choose to stay out of the trade. On the contrary, mirror trading requires you to replicate every trade of the master trader, even if you disagree with their moves.
Automation
Automation is used both in mirror and copy trading. However, mirror trading is considered a strictly automated trading strategy, as you don’t have to do anything after setting up your mirror trading account.
While copy trading relies on trade automation as well, you have the luxury of stopping the trades if you don’t consider them safe or profitable. You can easily close your position in copy trading even before the trading process starts.
Suitability
Both copy and mirror trading strategies are made for crypto trading beginners. However, mirror trading, in particular, is good for people with zero knowledge of the technicalities involved in blessing and stopping trades in the crypto market.
On the other hand, people with some basic knowledge of the crypto trading process should choose copy trading.
Moreover, if a trader wants to spend minimum time maintaining their portfolio and is only looking to invest passively in crypto trading, mirror trading is the best choice for them.
Mirror Trading: Benefits and Drawbacks
Just like with any other type of crypto trading, mirror trading in cryptocurrencies comes with its benefits and drawbacks as well.
Benefits
Instant Profits
Cryptocurrency trading has a steep learning curve, and it might take you years to fully understand the market and become profitable in most of the trades. However, if you do not want to miss the profits associated with the crypto market these days, you can use mirror trading to start earning profits right away.
Alongside the mirror trading technique, you can keep learning crypto trading to enhance your knowledge and become an experienced trader before doing manual trading.
There are lots of aspiring crypto traders who do not start trading just because of the fear of losing their funds.
Since the crypto market is very volatile as well, the best strategy is to keep learning while cashing the profits from mirror trading. This gives you the luxury of obtaining new knowledge every day and seeing practical examples by keeping an eye on your mirror trading account. While your mirror trading account earns you good profits in the long run, you can keep following veteran crypto traders and keep broadening your knowledge.
By continuing mirror trading and learning at the same time, you again avoid missing the huge profit potential hidden in the crypto market.
The best part is that you do not have to learn anything to start mirror trading, as your mirror trading account will automatically mirror the trades of an experienced master trader in exchange for some fees.
No Emotions Involved
If you are just starting in the field of crypto trading, there might be too many emotions involved in your trading decisions. Emotions are one of the biggest reasons why many traders fail right from the very start of their crypto trading journey.
However, since mirror trading involves your trading account exactly mirroring the trading strategy of the master trader, there are no emotions involved from your end. This way, you won’t have to make any trading decisions by yourself, and seeing positive results right away will provide you with instant relief.
Time-Efficient
The most time taking process in mirror trading is finding a reliable master trader and a good mirror trading platform to begin with. After using successfully setting up your mirror trading account, you won’t have to worry about maintaining your account every day.
In the long run, you will have to log in to your account occasionally, see how your master trader is performing, and cash out your profits. This is the only commitment required from you when you choose master trading as your preferred crypto trading method.
This makes mirror trading one of the most time-efficient crypto trading techniques available in the market. Because of this very luxury, lots of investors are trying their luck in the field of crypto trading for continuous passive income.
Massive Learning Opportunity
If you constantly keep an eye on your mirror trading account, you can learn how your master trader plans and executes their trading strategy and keeps their account profitable in the long run.
By learning crypto trading directly from master traders, you can develop deep learning of the market and learn how to do a proper market analysis before placing any trade.
Drawbacks
As a complete beginner to crypto trading, you might not find anything wrong with the moves made by the master trader. However, as you learn more about crypto trading and become an experienced trader, you will start to pinpoint the mistakes made by the master trader himself. You might begin to disagree with some or many of the moves made by them on a daily basis.
Some of the moves made by your master trader might be too cautious as per your risk appetite or too risky as compared to the resulting profit. This is when you will get many wrong points in your master trader’s strategy.
No matter how bad the decisions of your master trader might seem to you, you won’t have the decision to stop or even reverse them. That is because mirror trading accounts are directed to replicate exactly the trades of the master trader without any input required from the follower.
The only option you have is to stop following the master trader completely. So, in terms of flexibility, copy trading is way better than mirror trading, as it provides you with the luxury of stopping the execution of certain trades if you disagree with the trading strategy used by the master trader.
No matter how experienced you might be in crypto trading, you have no choice but to follow every movie made by your master trader, no matter how bad the move might look. While master traders have a portfolio of generating continuous profits in the past, this does not necessarily serve as a guarantee of future profits.
So, even if you are an experienced crypto trader, the performance of your mirror trading account depends entirely on the performance of the master trader linked to the account. If the master trader uses a wrong trading strategy and suffers from losses, your account will replicate those losses as well.
Since everything is replicated from the mirror trader’s account in real-time, your mirror trading account stands at a much higher risk of suffering from losses, and you won’t even have the choice to stop those losses unless the trade is ended by the master trader.
Is Mirror Trading Legal?
Mirror trading is perfectly legal. That is because followers are willingly following the master trader in exchange for a fee. Moreover, some countries and crypto trading platforms even regulate mirror trading activity and legally bind their master traders to use certified trading strategies and to minimize the risks.
Some beginner crypto traders consider mirror trading an illegal activity. While some scandals in the past have tarnished the image of mirror trading, that doesn’t necessarily mean that the activity itself is illegal.
Even today, there are lots of scams happening in the name of mirror trading, where fake platforms are used for phishing, and access to crypto wallets are stolen from crypto traders.
Whenever you want to start cryptocurrency mirror trading, you must do the due diligence, and find yourself a reliable mirror trading platform, even if they charge a high fee.
After choosing the right platform, you’ll have to choose a good master trader to follow. This is the only way to keep your mirror trading account safe and ensure long-term profits. Never go for anything that sounds too good to be true.
Lastly, only trade with the money you can afford to lose and can live without. Many people have made the mistake of using their pension funds for mirror trading, and they ended up losing their life savings.
So, while mirror trading is perfectly legal, you should still proceed with caution as the field is relatively new, and there are lots of scams and thugs waiting to hurt your portfolio as soon as you step into the market.
Conclusion
If you are a beginner cryptocurrency trader and do not want to spend hours learning how to trade and analyze the market, cryptocurrency mirror trading is the best strategy for you.
By setting up a mirror trading account, you can keep your hands off the trading account for a long time, and it will keep generating profits. This is surely given that you choose a good mirror trading platform and a reliable master trader to follow.
When choosing mirror trading, you will have to accept the fact that it is not flexible at all and provides you with no control over your mirror trading account.
The master trader makes all the moves, and the profit and loss of your funds depend entirely on the decisions made by the master trader. So, if you want to stay profitable in mirror trading, choosing a reliable master trader is a must.