Mirror Trading and Copy Trading: How Are They Different?

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interests include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency ecosystems. 

What Disadvantages Does Crypto Mirror Trading Involve? 

There is not much historical pricing data for cryptocurrencies. Indeed, the seminal cryptocurrency Bitcoin was only recently introduced by way of a 2008 Whitepaper. Mirror trading performance data therefore has existed for only a little more than ten years. Given this short time frame, investors do not have much data backing up how mirror trading would perform given certain market conditions, such as a lengthy bear market. 

Having a large number of investors that duplicate or mirror a given professional trader might raise liquidity issues. For example, some types of cryptocurrencies may not be available in the necessary quantities to support the demand for a large number of mirror investors. 

In addition, with mirror trading, gains are mirrored. But losses are mirrored as well. Therefore, an investor should recognize that gains are not guaranteed. If the professional trader experiences losses, the mirror investor experiences losses as well. 

With mirror trading, buying, and selling is automatic. Investors are not in immediate control of the positions being executed within their accounts. Trades are placed automatically, no matter the present state of the crypto marketplace. Therefore, investors must place a lot of trust in the professional trader whose trades are being “mirrored.” 

How Is Mirror Trading Different from Copy Trading?

In copy trading, you identify a successful professional trader's trades and evaluate them to determine whether you want to copy them. Copy traders follow professional traders through social trading systems or social networks, such as Crypto Twitter. Professional traders use these social platforms to describe and explain their investment ideas, philosophies, and trade placements. 

Unlike mirror trading, copy trading allows you to have selective control over your investment decisions and the timing of your investment decisions. With copy trading, you identify what potential trades interest you, and then decide if and when you will place a similar trade. In contrast, mirror-trading trades are placed automatically, whether you agree or disagree with them. 

Mirror trading might suit those who have little time to investigate trades and investment options. In contrast, copy trading might suit those who have time to review trades and perform a bit of research. 

One advantage of copy trading is that you are not committed to following one particular trading professional. So copy trading allows you to experiment with different trading strategies offered by different trading professionals. 

With mirror trading, trading flexibility is usually quite limited. You are generally locked in to the particular trading style of a selected professional for the term of your mirror trading account. 

One potential disadvantage of copy trading versus mirror trading is the timing of trades. With mirror trading, your trades will take place automatically, in real time. With copy trading, you must first identify trades that you might copy, evaluate them, and then execute the trade. With the fast moving price actions of cryptocurrencies, this time lag could be a disadvantage. 

Is Mirror Trading Illegal?

No law specifically prohibiting mirror trading has been identified. Mirror trading is legal in the US as long as the investor uses a regulated broker or trading platform. However, some countries might have general crypto trading restrictions that could relate to mirror trading. For that reason, it's safest to check your local regulations before you begin mirror trading. 

In recent years, some stories of “fraudulent” mirror trading have emerged. Some of this negative press stems from the actions of the crypto firm Mirror Trading International (MTI). In 2017, it was reported that MTI was involved in a money laundering scandal. By association, some people came to believe that “mirror trading” meant fraudulent activities. 

That same year, Deutsche Bank was fined $630 million USD by regulators for trades that were referred to as "mirror trades." Again, these trades were related to laundering money through fraudulent activity – not “mirroring” the trades of an experienced trader. 

What Is the Outlook for Crypto Mirror Trading? 

Recently, the crypto market cap eclipsed an all-time high of over $3 trillion USD. And with some institutional investors projecting that Bitcoin may achieve $1 million USD per coin, interest in crypto investing will continue to grow. This is especially true among the “do it your-self investor” crowd, especially those experiencing a FOMO. These are investors who will take on investment decisions by themselves, rather than rely on the advice of an investment professional, such as a stockbroker or an investment advisor. What helps drive these investors to seek their investment independence is the emergence of 0% commission trading options. 

An “I can do this” attitude coupled with “free” trading platforms will increase demand for crypto mirror trading as digital assets are becoming more accepted in the marketplace and as potential investment options. Mirror trading allows “do-it-yourself” investors to reduce investment risks and potential investment scams by following professional traders. This may be especially important if you have little time to perfect your initial crypto investment strategies but want to maintain ultimate control over your investment decisions. 

Conclusion 

Mirror trading offers investment advantages to novice crypto investors. Before you engage in mirror trading, look into the related laws in your region. If it is not legally restricted where you live, identify a targeted mirror investment strategy. Then, research available investment options. 

To inform your decision, study the performance metrics of each mirror trading service platform. Set out an investment budget and establish a mirror trading account. Then, since your mirrored investments are automatically placed, relax and let the mirror trading account automate your crypto investment decisions. And finally, review the profitability and performance of your chosen trading account. If you are not satisfied, review your other investment options and choose a different trading professional whose results you wish to mirror.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity whatsoever with which Thomas Wettermann has been, is currently, or will be affiliated. Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

Thomas Wettermann is not an independent financial advisor. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary of Thomas Wettermann, and does not constitute investment advice.

Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form.