Although there is a distinct relationship between Social Trading and Copy Trading, they are two different objectives.
Social Trading characterizes the endeavors or undertakings meant to create a synergy to strengthen a crypto community. In contrast, Copy Trading is an aspect of Social Trading that enables users to mirror more experienced trading patterns.
It is beneficial to understand how these two terms contrast as a member or trader of a cryptocurrency and blockchain ecosystem. This will better enable us to explain to new members of the industry.
What are the advantages and disadvantages of copy trading?
There is no mystery in wrapping our heads around how Copy Trading works. It is simple: once a trader makes a successful trade, they can share this trade with other users. IF the Copy Traders so choose, they can opt to mirror the same transaction.
Other than the possibility of gaining profits from mirroring Social traders, Copy Traders may also acquire knowledge and new techniques that may be useful for them in the future.
On Forex type trading platforms, Social Traders are paid a commission for sharing their trades with Copy Traders if the trade is successful. However, this would not be the case in a private decentralized platform such as Compumatrix, where the idea is to help those who cannot trade.
The popularity of Copy Trading has risen quickly. This could help some newcomers or the less experienced become better traders through the practice of Copy Trading. Although it is best to keep in mind, not ALL are cut out to be traders and would benefit more from continuing to do Copy Trading.
Should newcomers become good traders through Copy Trading, they are more likely to share their success. Thereby allowing future Copy Traders to do the same.
Caution is advisable here. Many who promote themselves as “professional” traders and offer their services to be Social Traders are often amateurs. These amateurs could make costly trades for themselves and then, if copied, eventuate losses to the Copy Trader as well. Companies will not assume liability on any loss as any trade decision made by either trader is done by free will and choice!!
New Copy Traders are often too quick to mirror Social Traders, especially those Social Traders with many followers. So, it is WELL to remember just because a Social Trader has a large following does not necessarily mean they are trustworthy.
How does Social Trading and Copy Trading Help the Industry?
According to Statista, the number of cryptocurrency users rose by 25% between Q2 2019 and Q2 2020, reaching an all-time high of 50 million. It is evident that more and more folks, perhaps from the effects of the “Pandemic,” need and search for ways to increase their income. It isn’t a far stretch to assume that many of these are brand new inexperienced investors.
By sharing news or information about trading or developments in the industry, users of all levels could gain knowledge and insight into trading. They could also share ideas and ask questions pertinent to the industry and get input from the more experienced.
With the growth and influx of newcomers to the industry comes a heavy responsibility of the Cryptocurrency Company to ensure they do not jeopardize the community’s growth and forward movement. The newcomers armed with scarcely more than the desire to make money in as little time as possible, tend to harm themselves financially. The community and the Cryptocurrency company usually suffer as well. Lack of trading experience, FOMO (fear of missing out), and a few other factors can generate wrong choices and decisions.
This is perhaps where Social Trading and Copy Trading would greatly benefit a Cryptocurrency Company, the community, and the newcomers.
Cryptocurrency Companies who offer Social Trading should monitor by overlooking their actions to ensure no cheating or abuse creates a poisonous atmosphere for growth and success.
With the knowledge that members are operating within a safe environment, confidence is instilled. Trust helps boost the company’s reputation and that of the whole cryptocurrency ecosystem.
What is hindering companies and exchanges from adopting Social Trading and Copy Trading?
Work remains regarding the innovation of Copy Trading and Social Trading. Only a few exchanges so far have integrated the copy trading feature on their sites. However, this may change soon because exchanges are free to borrow innovative ideas from competitors without the fear of any legal restrictions or actions.
Perhaps the industry does strongly need an intellectual property legal framework to prevent the competition from stealing the innovation created by the hard work of another?
New and emerging markets are especially vulnerable to the threat of theft of their innovations.
Some may think, yes, oversight is needed and should be implemented. Others argue that adopting shared ideas has worked thus far for the industry, and fear any interference may create problems. Naturally, the counterargument is that it takes much dedication, commitment, and many working hours to develop innovation, so laws to govern unfair competitive behavior are essential.
On the one hand, this could bring the communities closer. On the other hand, how much decentralization would be forfeited by creating laws to govern behavior?
Overall, this could be an incredibly useful tool when used wisely and appropriately. Possibly even augmented for use in decentralized environments?
**DISCLAIMER* Please be advised that this is being provided solely as an educational offering. There is no intimation this is something we at
Compumatrix is suggesting setting up to do.
Therefore, we offer this disclaimer:
Compumatrix is not proposing this set up for any member.