As part of our first article in our passive income in crypto series we will be discussing Copytrading. This article will run through what Copytrading is, how Copytrading works, the risks and the potential benefits of it, and a guide on how to start Copytrading.
What is Copytrading?
The vast majority of people who start trading lose money. This is a known fact. Some will slowly bleed their account away bit by bit over the course of weeks months or even years. Others will bet the farm on a handful of trades and be wiped out in two weeks. However the result in both scenarios is the same. Whether you blow up your account in 2 weeks or 2 years you are just another addition to the statistic of 91% of retail traders who have lost money.
This poses an interesting question if 91% of people fail trading why don’t we just give our money to the 9% of people who do. This is in essence what copy trading is. When they place a trade you copy it exactly.
In the “Real World” that’s what happens for the most part. People entrust others to invest their money into an index fund, hedge fund, bonds, or some other type of passive fund.
Up until recently there hasn’t been the infrastructure to do the same in the crypto world. But in steps PrimeXBT which gave the ability to do it all through crypto when they launched their Copytrading module this year with the help of Covesting.
How Copytrading Works
Copytrading works on PrimeXBT by letting you choose between a variety of ‘funds’. These are set-up by users of the platform to allow others to copy their trades.
Users can then deposit money in a fund of their choosing. From then on anytime the fund manager makes a trade you will automatically copy it.
It is important to note when you ‘deposit’ Bitcoin into a fund they do not actually have control of your Bitcoin. They cannot withdraw any Bitcoin that you deposit in their fund. Your Bitcoin remains on PrimeXBT in your ownership only every time they make a trade the PrimeXBT platform will automatically copy it.
There of course is an incentive structure for starting a fund and allowing users to copytrade you. This can be seen in the table below. Of the potential profit a fund makes the depositor (you) gets 60%, PrimeXBT get 20%, and the owner of the fund gets 20%.
The Risks of Copytrading
Like everything there are risks associated with Copytrading. The most obvious one is that you are letting someone else trade your Bitcoin. You could lose all your deposited Bitcoin if the fund starts to lose money.
A lot of the funds have extraordinary total profits as previously seen in the image above. Be very careful when depositing in these funds. If they can make 5000% profit in a few weeks there is the potential that they could lose it all tomorrow. If you are investing in high risk funds like this ensure that you are only depositing a small amount of money that you feel comfortable losing should things go bad.
Most of the funds have a description of what type of strategy they are employing and the risk associated with said strategy. Read through the description before making up your mind on what fund(s) you are going to deposit your Bitcoin in.
Many of the fund managers have Twitter accounts and Telegram channels linked in their funds description. Read through them to again further incite into the risk level associated with certain funds.
Another piece of advice is to check the funds star rating and ensure they always have over 0.5BTC of equity in the fund. This ensures that the trader has skin in the game and is a lot more incentivized to trade well.
You can also check the amount of equity the fund manager holds within the funds description.
The Benefits of Copytrading
Again the benefits of Copytrading are obvious. It is a way to generate some potential income without having to do much of anything. In essence it is as the name implies ‘passive income’.
There are risks attached which we have just mentioned but if you are willing to manage these risks appropriately copytrading can be a decent source of income with whatever spare amount of Bitcoin you have lying around.
How to Start Copytrading
PrimeXBT makes both Copytrading and starting your own fund very easy. We will first start with Copytrading.
Step 1) Creating an Account
Creating an account on PrimeXBT is just like making one anywhere else. All you need is an email, phone number, and password. PrimeXBT also has the added benefit of not requiring KYC.
Step 2) Depositing your Bitcoin
Once you’re all registered the next step is depositing your Bitcoin which we will use to Copytrade.
First find the accounts menu in the top navigation bar.
Secondly look for the deposits tab in the dropdown menu on the left hand side of your screen.
Finally you will see your personal deposit wallet. Scan the QR code or enter the wallet address manually into the send function of your Bitcoin wallet.
You can also buy Bitcoin directly on PrimeXBT if you so choose using the button on the right.
This will bring you to the following screen where you can complete your transaction.
Step 3) Depositing in a Fund
Once your Bitcoin transaction goes through we can invest in a fund.
Firstly go to the Covesting tab in the top navigation bar.
Next you will see the full list of available funds as shown below.
Here you will want to research which fund suits your needs and risk profile best like we have previously mentioned.
Once you have found a fund that suits you click the follow button on the right hand tab.
This will bring up the following tab.
Enter the amount you are willing to deposit, agree to the terms and conditions, and click follow.
Voila! You have successfully started copy trading. You can view all the funds you are following and their total profit and loss in the ‘Portfolio’ tab on the left.
Becoming a Fund Manager
If you think you have what it takes becoming a fund manager is very easy. Within the same Covesting tab mentioned on the left side of your screen there is a ‘Create Strategy’ tab.
Once you are there you can enter the name of your strategy, a description and social links your followers can use.
You will then be asked to deposit the minimum amount of 0.1BTC to open a fund. Once you have done that congratulate yourself on opening your first fund.
If you have made it this far you know everything you need to know about Copytrading. Whether you choose to start is entirely up to you. You know the drawbacks and risks and you know the benefits.
If you are still unsure about it start with a small amount. If it works, great! If it doesn’t, that’s fine too you haven’t lost anything.