OCT 30, 2023
Deep Dive into CeFi CopyTrading and Trader Profile Analysis
by ZIBAH, CopyChain Crypto
One major way to stay profitable while copytrading on centralized exchanges is mastering trader profile analysis. Copying trades without proper trader profile analysis is a sure way to capital liquidation. In this article, We'll be making a deep dive into how trader profile analysis and copytrading work together in helping traders stay profitable on centralized exchanges.
Making profit is the main reason for engaging in trading, whether you are an experienced trader or a novice. In this same vein, staying profitable is the major goal of crypto copy trading. To stay ahead of the curve, two contents in this pool were made to lay emphasis on copy-trading and on-chain analysis. (You can also catch up on their explainer videos here:
Blockchain technology has made on-chain (transaction) analysis and copytrading possible through its immutability and transparency (regardless if it's a CeFi or DeFi-based platform). In this piece, more focus will be placed on copy trading and trader profile analysis with regards to centralized finance (CeFi).
What is CeFi?
CeFi, otherwise known as Centralized Finance, is a method used in the cryptocurrency market to manage cryptocurrency token sales, purchases, and trades via a central platform or exchange.
CeFi is the cryptocurrency market's version of traditional stock brokerages and investment firms, handling equity and fiat currency trading on public stock exchanges. While regulations exist in Western economies such as the U.S. and Europe, CeFi is not as strictly regulated globally as fiat currency equities trading.
Before allowing a customer to start utilising a centralized exchange, CeFi frequently demands Know Your Customer (KYC) compliance, which verifies a user's identity. KYC aims to assist in the prevention of tax evasion, money laundering, and terrorist funding by verifying the identity of the user.
Examples of CeFi companies (Centralized Exchanges) are Binance, BitGet, ByBit, Kucoin, MEXC, etc.
Image source: Soma.finance
How Crypto Copy Trading Works in CeFi
In centralized finance (CeFi) systems, crypto copy trading operates by enabling users to automatically replicate the trades of other users, referred to as signal providers. Typically, signal providers are seasoned traders with a successful track record. Users will instantly have their accounts mirrored to reflect the transactions of the signal providers they have chosen to follow, should they wish to copy the trades of one or more of the signal providers.
A Step-by-Step Overview of How Crypto Copy Trading Works in CeFi Systems:
Using Binance as a custody, here is a step-by-step overview of how crypto copy trading works in CeFi systems:
- Create and verify an account on a CeFi platform that offers copy trading, like Binance, BitGet, eToro, etc.
Image source: Binance
- Deposit funds into the account that you just created. Kindly note that these funds will be used for copy-trading on the platform.
Image source: Binance
- Browse through the list of signal providers and select one or more to copy. (In my next posts, I'll show you how to check for profitable signal providers on CeFi systems; do well to check them out to get the best out of your trades).
Image source: Binance
- Set a risk management strategy, such as a maximum percentage of your portfolio that you are willing to allocate to each signal provider and a stop-loss order level.
Image source: Binance
- Activate copy-trading.
Once copy trading is activated, your account will be automatically mirrored to match the trades of the signal providers you are following. This means that if a signal provider buys a particular cryptocurrency, your account will also buy the same cryptocurrency. Similarly, if a signal provider sells a particular cryptocurrency, your user's account will also sell the same cryptocurrency.
Note: Either you are new to crypto trading or you have little experience in crypto trading, crypto copy-trading can be a convenient way for you to get involved in the crypto market without learning to trade yourself. However, it is important to remember that copy trading is not a risk-free strategy. The performance of a signal provider's portfolio can fluctuate, and as a copy trader, you could lose money if you copy the trades of a signal provider who is not performing well.
Tips for Using Crypto Copy-trading in CeFi systems
Here are some tips for using crypto copy-trading in CeFi systems:
- Do your research on the signal providers you are considering following. Make sure they have a proven track record of success and that their trading style aligns with your own risk tolerance.
- Start small and gradually increase your investment as you become more comfortable with crypto copy trading.
- Set risk management measures in place, such as a stop-loss order level and a maximum percentage of your portfolio that you are willing to allocate to each signal provider.
- Monitor your account regularly and adjust your copy trading settings as needed.
Remember that crypto copy trading is not a get-rich-quick scheme. It takes time and effort to learn how to use it effectively.
Benefits of using crypto copy-trading in CeFi systems:
Here are some of the benefits of using crypto copy trading in CeFi systems:
- It is a simple and easy way to get started with crypto trading.
- It allows you to benefit from the expertise of experienced traders.
- It can help you diversify your portfolio.
- It can be a hands-off approach to trading, which can save you time and effort.
Risks of using crypto copy-trading in CeFi systems:
Here are some of the risks of using crypto copy trading in CeFi systems:
- Always be aware that you are relying on the expertise of a signal provider. If the signal provider makes poor trades, you will lose money.
- CeFi exchanges are centralized, which means that they are vulnerable to hacks and other security breaches. Therefore, only keep
- You might not earn enough if your trading capital or account size is small.
Crypto copy-trading in CeFi systems is a powerful tool that can help you achieve your trading goals. However, it is important to use it responsibly and to be aware of the risks involved. By following the tips above, you can minimize your risks and maximize your chances of success.
Also, don't put all your eggs in one basket (try to copy-trade multiple signal providers to diversify your portfolio), and don't abandon your own research. Even if you're copy-trading, it's important to understand the market and the projects you're investing in.
Lastly, be patient. The crypto market is a volatile market, and it takes time to build a successful portfolio through copy-trading.
The next two contents will be on how to check for profitable traders on Binance and Bitget and how to copy their trades for profit. Do well to check out the next posts, cheers.
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