What Is Mirror Trading And How Does It Work?
Introduction
Cryptocurrency trading is not just a matter of getting familiar with the technical and economic aspects. It is also about developing an understanding of the investment markets and the mentality of the investors.
By getting into the psychology of the investment markets, the investors can teach different techniques, such as Mirror Trading, that enable them to make more profits with smaller efforts. Investing is a type of skill that is more about working smartly rather than plunging head-first into the infinite rows of data that can sometimes overwhelm new investors and analysts.
What is Mirror Trading?
Mirror or Copy Trading is a technique where an investor can follow the trading streak of experienced traders. In this manner, they can learn from experienced investors and follow in their footsteps.
However, in this method, rather than trying to spy on an established investor, the beginners formally appoint a Master Trader. The master trader, in this case, can open access for novice investors in exchange for a fee. Mirror trading that is also known as Copy Trading, is classified as Algorithmic Trading Strategy.
How does Mirror Trading Work?
Mirror Trading is a great technique that is about ensuring the chances the success for investors who are only starting. By working alongside an experienced investor, the investors who are using this technique can also gain experience and work on perfecting their trading strategies.
Furthermore, there must be some type of service or consultation agreement between the established investor and those who are taking a reference from them. It ensures the safety and security of the investors and removes the chances of scams.
Mirror Trading also stems from the fact that most cryptocurrency investors are advised to work under the supervision of a broker. Therefore, most cryptocurrency exchanges offer different levels of trading accounts that can grant them access to the required help and consultations on the matter of crypto trading.
Mirror Traders can get the latest updates from the trading accounts of the principal investor. On the other hand, they can also receive selected notifications and market reviews issued at the discretion of the master investor.
Origin of Mirror Trading
The origin of Mirror Trading has been traced back to the 2000s. This type of trading technique was most prevalent among Forex investors. The main reason that Mirror Trading managed to gain mass popularity during the start of the 21st century is the presence of online trading apparatus such as the internet, social media, and online trading applications.
In this manner, more investors around the world were able to come together and pursue discussions about trading topics. Before the age of the internet, investors couldn’t communicate with each other instantly.
Comparison of Mirror Trading with Program Trading and Social Trading
Mirror Trading is a way for investors to make their debut in the trading world without taking on a massive amount of risk. The truth of the matter is that there are countless trading variables and market factors that a newbie might find difficult to account for all at once.
Therefore, they should always proceed as per the guided path provided by investors that have a considerable amount of trading experience. However, some trading techniques are often muddled and confused with Mirror Trading.
Here are two main trading techniques that seem very much like Mirror Trading, but they are quite distinguishable:
Program versus Mirror Trading
Program Trading is something that is often mixed and compared with Mirror Trading. This trading technique is about developing programming snippets to gather the latest trading changes in master trading accounts.
It means that investors can measure and track every single trading decision using tracking codes. Many traders have heard about cryptocurrency whale aggregators. These accounts are a good example of programming trading.
They are designed to track all the tradeoffs in a particular whale wallet and report it for the benefit of public or personalized use.
In the case of program trading, the master accounts are not linked to the trackers. However, in mirror trading, the main investor grants access to their trading accounts to the trainee investors.
In this manner, Mirror Trading users are taking advantage of the trading signals created based on trading habits and the sentimentalities of an expert investor. Therefore, investors can also create trading simulators based on the habits of the investors’ trading data that are not around anymore.
Mirror Trading versus Social Trading
Social Trading is also very much the same as Mirror Trading. However, the slight difference in this trading method is that investors wish to take advantage of this method without a willingness to gain any insight into the techniques of trading.
Social Trading is useful for investors who do not have time to learn trading techniques on account of their other professions, such as engineering, etc. However, these investors can still generate profits by investing and productively deploying their savings.
Mirror Trading is also about copying the trading habits and tactics of a master investor. However, in this mode of investing, the traders are both training, and they are also performing trading analysis.
Mirror Trading and Copy Trading
Although Mirror Trading is often considered synonymous with Copy Trading, some minor differences set them both apart from each other. Mirror Trading is about perfectly following each trading decision made by the main investor.
On the other hand, Copy Trading is a technique where the investors work with trading algorithms that suggest them the best possible move based on the trading patterns of a principal trader. In Mirror Trading, the entire trading portfolio is the replica of the portfolio of the main investor.
However, with Copy Trading, the investors are at liberty to create a personalized trading portfolio and use it under the guidance of the master trader simulator.
Building Blocks of Mirror Trading
Cryptocurrency investors should use Mirror Trading to their advantage because, at present, there are thousands of cryptocurrency options at their disposal. However, to take the full benefit of this trading strategy, investors should take a gander at the following foundational aspects of Mirror Trading:
Potential Returns
The main objective of any cryptocurrency investor is to verify their chances of making profits. However, investors who do not have formal training and experience in the trading field can find themselves out of their depths.
Therefore, adopting techniques like Mirror Trading is going to ensure a planned route for them. When investing without supervision, the market variables can misdirect a new investor. Hence transferring some of the trading responsibility to an established investor with a proven track record is a good way to get started.
Trading Flexibility and Customization
With different aspects of Mirror, Trading investors can choose to get the type of trading flexibility they want. For example, investors can pick between Copy trading, program trading, and social trading to keep their trading accounts fully independent or partially connected to the principal trading account.
At the same time, traders can also select the level of customization leverage they wish to have with Mirror Trading. For example, an investor who has a command of programming languages but does not have an idea about trading can use the program trading option, and others who are expert traders but don’t understand programming can take advantage of mirror trading.
Psychological Bias of Traders
When an investor is only starting, it is normal that they end up getting caught up in the wave of market manipulations. The herd mentality is a trait that is more applicable for cryptocurrency investors on account of constant social media exposure. Many cryptocurrency influencers may issue biased trading projections.
Therefore, the new investors can get swept up by a pump scheme or fall into a financial scam. Therefore, working under the guidance of a professional broker can prevent the such occurrence and cut out the chances for sentimental trading decisions.
Trade Automation
Mirror Trading is a great way for investors to make the process of trading automated. In this manner, cryptocurrency investors can adopt a particular trading strategy and link their accounts to a master trader and forget the rest.
Therefore, investors can set their accounts for a long-term trading experience and forget it. In this manner, they automate their trading positions and do not have to take the stress of performing technical analysis and trying to neutralize the speculative forces of the marketplace.
Concentrated Focus
With Mirror Trading and its parallel trading methods, investors can concentrate their attention on a particular trading plot. There are countless trading variables, and the market is considered to be highly volatile by investors.
Therefore, the uninitiated investors can fall prey to the consumers who can get affected by different trading factors and end up making unclear and uncertain positions. Therefore, with Mirror Trading, investors can learn to focus their attention on a particular goal and make sure that they are not glided away from their targets and profit goals.
How to Apply Mirror Trading with Cryptocurrencies?
Cryptocurrencies and DeFi markets have effectively reinvented Mirror Trading. The main reason is that cryptocurrency trading is solely based on the principles of Mirror Trading. Therefore, investors can use algorithms and different trading programs that allow them to commence Mirror Trading on cryptocurrency platforms.
Additionally, several cryptocurrency trading platforms offer various forms of Mirror Trading services for cryptocurrency investors. Here are some important aspects of Mirror Trading with cryptocurrencies:
Market Liquidity
Market Liquidity is a very important factor for cryptocurrency investors who are opting for Mirror Trading options. If a cryptocurrency in the portfolio of an investor is not liquid enough, the connected investors who are linked with the master account, it means that the investors would not be able to get out of their current trading positions if the market is not liquid enough for them.
Therefore, investors must pay heed to this important factor, or they would not be able to remain profitable despite using Mirror Trading.
Autopilot
Mirror Trading puts cryptocurrency investors on autopilot. In the age of digitization and the free flow of knowledge, it is the next evolutionary step for investors. Rather than remaining glued to the computer screens, investors can link their accounts with a master trader and put them on autopilot.
Instead of remaining glued to data analytics and every single market change, investors can rest assured that the algorithm is working for them while they are utilizing their efforts in pursuit of passion projects and other aspects of life.
Trading Fee is an important factor to consider when working with any type of trading strategy. There is a considerable chance that the master investor is going to charge a fee for their services. The traders that are offering their services for free are most likely to thug others.
Therefore, it is better to stick with the investors who charge fees for their consultation. However, at the same time, investors might also end up losing their profits in the form of trading fees if they are not careful about all the hidden and visible expenses of opening and closing their positions.
Trading Algorithms
Trading Algorithms are the foundational component of Mirror Trading. Investors who are just getting started can increase their skills by learning more about these trading algorithms. In this manner, these traders can understand mirror trading better and even install better customization options to evolve their existing trading practices.
Some popular cryptocurrency platforms offer Mirror Trading, such as eToro, WikiFolio, NAGA, Trading Motion, FX Junction, iSystems, Collective, and Zulu Trading, among others.
Advantages of Mirror Trading
Mirror Trading is a tested technique and such that has been listed by World Economic Forum as well. Therefore, investors can get the following advantages from this method:
Objective Trading
As mentioned earlier, there are lots of psychological factors acting on the mind of an investor when they are only starting. Therefore, with Mirror Trading, the investors can compare and notice the differences in the trading patterns of experienced investors and their impression of the marketplace.
In this manner, these investors can truly ensure that they remain focused and objective throughout their trading journeys.
Time-Efficient
Being time-efficient is a quality of Mirror trading that is often praised in investment circles. Rather than losing valuable time in researching different trading topics, investors can get right to the point and simply pick one Master trader for their consumers.
In this manner, the investors can start making profits from the get-go. It also means that they can learn while they are earning from their trading journey.
Learning Curve
Learning is an important aspect of life. With trading, this rule also does not change. Mirror Trading and its contemporary methods are a great way for investors to ensure that they are improving their chances of making profits.
Mirror trading, in most cases, can keep working with consistency without any active intervention from the investors. On the other hand, the investors can also choose to have customization options at their disposal and learn by observing and faculties of comparison.
Early Profits
With Mirror Trading, the investors can start earning before their trading chops have fully developed. Therefore, while most other investors are busy attending a school or a training session, the investors who are using Mirror Trading can make profits from the first day of their position creation.
Limitations of Mirror Trading
Here are some risks involved with Mirror Trading that every investor must keep in mind:
Dependency
In many cases, investors who have been using Mirror Trading for a while might become increasingly dependent on the master investor.
Therefore, it can pose a threat to the independence and personal growth of investors. Investors who wish to become financially frugal must invest the spare time saved by Mirror Trading into learning about the market dynamics.
High Fees
With Mirror Trading, investors need to pay special attention to the collective fees. It can happen at times that the consultation fees and other trading expenses end up swallowing the whole profit margin for a newbie.
Therefore, investors must pay special attention to the terms and conditions of their Mirror Trading contracts before signing up for them.
Conclusion
Mirror Trading is a wonderful and innovative trading method. This type of trading has been around for a few decades, and therefore the trading algorithms are getting better. Furthermore, more investors are introducing AI and Machine Learning protocols in the Mirror Trading space.
Thus, rather than human investors learning, the MT programs have also taken on this responsibility for the traders. Mirror Trading is the way forward and future of investing, and it may become a major part of the cryptocurrency trading ecosystem.
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