Mirror Trading in Crypto. Trading cryptocurrencies, especially for those without experience, is fraught with danger because of how unpredictable the market is. Mirror trading and copy trading are two trading tactics that might help you lower your risk by mimicking the actions of successful traders in the market. Here, we’ll examine mirror trading and how it relates to cryptocurrency in great depth.
What Is Mirror Trading?
To achieve the same level of success as a famous trader, you can use a technique called “mirror trading,” in which you mimic their every move in the market in real-time. This trading method is based on the idea that a Master Trader’s actions can be “mirrored” by an automated system in real-time. This trading approach is thought of as algorithmic.
Thanks to developments in trading software, mirror trading became popular in the early 2000s. The stock market and foreign exchange trading were the initial users of it. Some cryptocurrency exchanges also offer mirror trading, a relatively new feature.
At first, large institutional traders were the only ones allowed to engage in mirror trading. Retail investors began utilizing trading software as its cost dropped and its reliance on automation grew. In recent years, the stock, FX, commodities, and cryptocurrency markets have adopted mirror trading as a widespread trading method.
How Does Mirror Trading Work in Crypto?
If you want to trade cryptocurrencies like a pro, you should pick a platform that lets you mirror trades and then pick a Master Trader to emulate. To help you make an informed choice when setting up your mirror trading account, each platform lists the performance data and history of Master Traders. To encourage others to adopt their trading tactics, Master Traders provide a cut of their followers’ winnings.
You can put your feet up and let the platform’s algorithms mimic the actions of your preferred Master Trader when you use it as a follower mirror trader. The program that connects your account to your Master Trader’s does all the work and analysis.
Remember that the bitcoin market’s unique characteristics bring extra considerations while utilizing mirror trading. First, your Master Trader’s chosen techniques may necessitate quick revisions in light of the ever-shifting crypto market. The rapid price fluctuations in cryptocurrency mean that you and your Master Trader are both at risk of losing money suddenly if they don’t respond fast enough.
Second, the crypto market currently lacks variety in mirror trading platforms. The limited number of cryptocurrency exchanges that offer a full-scale mirror trading platform results in higher costs and fewer discount possibilities.
Crypto Mirror Trading vs. Copy Trading: Which Is Better?
Although they are not identical, mirror and copy trading are comparable. In copy trading, you mimic the actions of a well-known and prosperous master trader. On the other hand, the follower trader has some say in some decisions with copy trading because it is customizable. Copy trading gives you the freedom to make certain changes, unlike mirror trading, which blindly mimics a Master Trader’s every move. Crypto copy trading offers greater flexibility and is accessible on more platforms than mirror trading.
Potential Returns
Your return potential is highly dependent on the risk profile and trading style of your Master Trader, regardless of whether you use a copy trading or mirror trading technique. Copy trading and mirror trading are two ways to replicate a trading technique. Therefore, they may not be all that different in terms of risk-versus-reward.
Nevertheless, these fees are larger because fewer platforms provide mirror trading, reducing the profit that may be made. However, trading fees for copy trading are typically rather modest. Because Bybit’s copy trading is free for both followers and master traders, users stand to gain a lot more over time.
Trading Flexibility & Customization
As mentioned above, mirror trading lacks the personalization options of copy trading. For this reason, copy trading could be the way for those who value autonomy in their trade. Unlike mirror trading, copy traders can choose which Master Traders’ actions to follow or ignore.
If you’re using copy trading and your Master Trader makes a dangerous or erroneous move, you cannot copy their trade. Mirror trading, on the other hand, requires you to unthinkingly follow your Master Trader’s decisions, regardless of whether you agree with them or not.
Trade Automation
To function, duplicate trading and mirror trading depend on automation. Since the former relies solely on “set and forget,” it may be argued that it is a more automated technique. Copy trading also allows you to manually end positions before the Master Trader does, so you can stop trading whenever you choose.
Suitability
Mirror trading is a better option than copy trading for new traders who are unsure how to set up even the most fundamental trading systems. It could also be useful for traders who want to spend little time managing their trades.
Pros and Cons of Crypto Mirror Trading
Mirror trading has advantages and disadvantages, just like any other trading strategy.
Pros
- Beginners can be profitable right from the start. You can start making money with mirror trading even before you’re good at all the different trading strategies. Due to a lack of understanding, many rookie traders put off beginning their trading activity. While testing the waters with small sums of money, they may devote a considerable amount of time to understanding the fundamentals of trading, researching other markets, and reading famous traders’ advice online.
- Zero emotional element in making trading decisions. There is no room for emotion in this form of trading because it is entirely automated and depends on the actions of other traders. This is a godsend for inexperienced traders who can feel overwhelmed by the sheer number of trading decisions they have to make.
- Mirror trading is time-efficient. First things first, figure out which Master Trader you want to emulate. Keeping tabs on your account becomes much easier after that. You should check your account balance occasionally to see if your Master Trader’s performance has changed considerably. Besides that, there isn’t much time investment involved with mirror trading.
- You get to learn from an established Master Trader. You get a glimpse of the inner workings of a professional market trader as their strategies come to fruition, and your account mimics them.
Cons
Like any other method, mirror trading has benefits and downsides.
- Complete dependency on another trader’s style and decision-making. You may question or disagree with some of your Master Trader’s decisions as your trading expertise grows. Maybe you find some of their actions overly cautious or too hazardous. You could make money by mimicking their plan and agreeing with their overall approach, but you might also doubt some of it.
- You’re tied to the performance of another trader. Success in the past is no assurance of future results, even if Master Traders tend to have a good track record. Due to the automatic and real-time nature of mirror trading, your account could be instantly jeopardized if your Master Trader makes a loss-inducing trade.
Is Mirror Trading Legal?
Master Traders and anyone else who mimics their trades are not breaking any laws. Master Traders are held legally accountable for upholding ethical trading standards in numerous regulated markets worldwide, where mirror trading is prevalent.
Some traders may think it’s against the law to engage in mirror trading. The widely reported “mirror” trading scandal between Deutsche Bank and certain Russian financial institutions is a major factor. As a result of the scandal, the biggest bank in Germany was involved in an illicit plot to transfer huge quantities of money out of Russia. The scheme’s “mirror” trades were completely unrelated to mirror trading.
Another well-publicized case that rightfully carries the stigma of “mirror trading” is that of Mirror Trading International, a deceitful Bitcoin pool operator based in South Africa that embezzled money from its customers. Mirror Trading International is unrelated to the mirror trading approach, much as the Deutsche Bank-Russia incident.
Conclusion
Mirror trading can benefit anyone looking to cut down on market monitoring and trade execution time, whether they are just starting out or are more seasoned traders. The ability to fully detach from the trading process is a huge boon for traders of all stripes.
Undoubtedly, the most significant drawback of mirror trading is the rigidity with which one must adhere to a Master Trader’s plan. Copy trading could be a good substitute for mirror trading for traders who need automated, hands-off techniques but still want some control and personalization.
