03 March 2023 • 9 min read
Mirror, mirror on the wall, who’s the most profitable crypto trader of them all?
The crypto ecosystem is replete with a language of its own, and it becomes even more confusing for new(er) investors when you add trading terminology into the mix. How well could you explain, for example, the differences between mirror trading, copy trading, and social trading? While it’s true that all three fundamentally involve the same approach to investing, there are shades of difference, which can and often do go unnoticed by most crypto investors (and crypto bloggers).
Just because they are similar, doesn’t mean that these terms can be used interchangeably. Profitable automated crypto trading is all about precision and we need to bring the same level of precision to the language of trading. We’ve already covered the fundamentals of crypto copy trading and the history of crypto social trading, offering helpful guides about what each entails as well as some useful historical background information.
In the following article, we’ll examine mirror trading in detail, looking at how it differs from copy trading, how it works, its benefits and limitations, and legality before considering what you should keep in mind when selecting a crypto mirror trading platform.
As suggested, mirror trading and copy trading are two popular trading strategies, which entail following and replicating the trades of other traders. Both fall under the umbrella of social trading, but there are some important distinctions to be made. In fact, it’s often easier to define mirror trading in conjunction with copy trading rather than in isolation.
In the first instance, let’s consider the issue of execution. With mirror trading, investors automatically execute the trades of other traders in something akin to a “set-it-and-forget-it” approach. Copy trading, on the other hand, involves a greater degree of agency on the part of the investor. While it’s true that copy traders are, well, copying the trades of others, they are more selective and involved in the process, often doing so manually.
Timing is also a crucial piece of the trading puzzle. Because they are automatic, mirror trades are often instantaneous. You might expect the same to hold true for copy trading, but it’s not always the case. While copy trading can be instantaneous, there may also be a time delay between the original trade and the investor’s copied trade.
Remember what we said above about mirror trading being automatic? The downside is that there is less control of individual trades as they are out of the trader’s hands. Copy trading, conversely, gives investors more control since they decide which specific trades to copy as well as customize trading parameters based on their own trading objectives and personal risk tolerance(s).
Although we’re generalizing with this next point, mirror trading usually requires a higher minimum investment threshold than copy trading. One of the reasons is the often greater complexity of algorithms used when mirror trading, with the opposite tending to be the case with copy trading.
Admittedly, these differences between mirror trading and copy trading are more a matter of different shades of gray, but it’s nevertheless important to understand these distinctions in order to choose the trading approach ideally suited for you.
For crypto mirror trading to work, there are a number of elements that must coalesce. These include the following (although there can be slight variations):
As with any service, crypto mirror trading platforms usually charge a fee, which can be either a percentage of the profits generated by the portfolio or a flat fee. Therefore, iInvestors should carefully consider the track record of the trader they are copying as well as the fees being charged by the platform before deciding to allocate funds to a mirror trading portfolio.
Although we’ve hinted at some of the benefits and drawbacks of mirror trading in our overview, let’s look a little more closely at some specific points. As with every trading strategy, there are strengths and limitations of which every trader should be aware.
Mirror trading is one of the many ways that investors can diversify their crypto portfolio. By allocating funds to multiple, more experienced traders with different strategies, you can spread out your risk and simultaneously increase your returns.
As previously mentioned, mirror trading eliminates the need for investors to actively manage their own trades, freeing up time that can be spent on other activities.
Mirror trading platforms often provide investors with detailed information about the traders that they are copying, including their trading history and performance. This information can help investors to make informed decisions about fund allocation, among other things.
Mirror trading provides investors with access to the profitable strategies and trading insights of experienced traders, who themselves have a successful track record of investing in crypto. If you’re an inexperienced trader, such access can be incredibly useful, as new(er) investors, most of whom simply don’t have the trading knowledge or experience to trade profitably on their own, particularly in challenging market conditions.
With the good comes the bad (or not so good). Let’s take a look at some of mirror trading’s limitations.
You’ve heard of KYC in crypto, but have you ever heard of KYP or KYE? Whenever a crypto trader decides to use a centralized crypto exchange such as Binance, they must go through a KYC process (“Know Your Customer”). But mirror trading platforms and the traders themselves can also pose risks to investors (three letters: FTX). The platform may be subject to hacking or other security breaches, and the traders may engage in fraudulent or unethical behavior, making it absolutely vital that you, as crypto investors, “know your platform” (KYP) or “know your exchange” (KYE).
Hot on the heels of the previous point, mirror trading investors are dependent on their chosen platform to execute trades and manage their portfolios. In the event that the platform experiences technical issues, goes offline or even goes bust, investors may not be able to access their funds or make trades.
While the best things in life may be free, crypto mirror trading isn’t one of them. Mirror trading platforms usually charge a fee for their services, which can eat into your profits. Thus, investors should carefully consider the fees charged by the platform and the impact on their overall returns in order to avoid unpleasant surprises when mirror trading fees are due.
Say it with us: past performance is not indicative of future results. While mirror trading can provide access to successful traders, past performance does not guarantee future results. Consequently, you should be prepared for the possibility of losses. More importantly, you should carefully consider the risk profile of the traders that you decide to copy.
Mirror trading is legal, but there are some regulatory considerations of which investors should be aware.
In many jurisdictions, mirror trading is regulated as a form of investment management, and mirror trading platforms may be required to register with financial regulators and comply with certain legal and regulatory requirements. It is incumbent on investors to be aware of the regulatory landscape in their jurisdiction and to ensure that the mirror trading platform being used is compliant with applicable laws and regulations. Additionally, mirror trading platforms may have their own terms and conditions that investors must agree to before using their services. These terms may include limitations on the types of traders that can be copied, restrictions on the amount of funds that can be allocated to a single trader, and other conditions.
Even though mirror trading is a legal and regulated form of trading, some believe that it is illegal, a nagging misconception brought about by two separate but significant events: a scandal involving a German bank and a failed financial scheme in South Africa.
In 2017, Deutsche Bank, the largest bank in Germany was caught in a web of illegal “mirror” trades that moved money out of Russia. A client would ask the Moscow branch of the bank to buy blue-chip stocks using roubles, while another would tell the London branch to sell the same blue-chip stocks at the same size and price for dollars. Although it had nothing to do with mirror trading, the similarity of the transactions was enough for them to be described as “mirror” trades.
Additionally, in 2022, the Commodity Futures Trading Commission (CFTC) charged South African bitcoin club Mirror Trading International with $1.7 billion in bitcoin fraud. As with Deutsche Bank, it had nothing to do with mirror trading; the misconception arose simply because of the company's name.
When choosing a mirror trading platform, there are several factors that you should bear in mind.
Trality’s Marketplace is a one-of-a-kind space that brings together crypto trading bot creators and investors for mutually beneficial purposes. Unlike other platforms with anonymous bot makers and unproven bots, Trality’s Marketplace is a carefully curated space with hand-picked creators and the best bots available—whether you’re interested in mirror trading or copy trading.
Investors can rent profitable bots tailored to specific risk tolerances (low, medium, and high) and individual investment goals. A full suite of metrics is available, allowing investors to decide on a bot based on clear, quantifiable data.
Receive updates in real time whenever changes are made to a bot. If a bot underperforms, investors have the ability to unfollow it at any time and select another bot.
Key metrics used when selecting bots for the Marketplace include risk-adjusted return, minimum trading activity, and time under water. And since the crypto market is a volatile one, all bots are backtested in different market conditions such as bull, bear and sideways market regimes to ensure consistent returns. It’s this uncompromising commitment to a transparent bot evaluation process that distinguishes Trality’s Marketplace from generic, black-box alternatives.
Investors who want to follow a bot on the Marketplace pay a monthly subscription fee between 9.99€ and 59.99€.
All strategies and algorithms available on the Marketplace are completely end-to-end encrypted and conform to the highest security and privacy standards. Traders’ funds remain safe on their chosen exchange, and Trality only uses withdrawal-disabled API keys.
To be a successful player in any financial market requires a thorough understanding of market dynamics and a healthy dose of self-awareness. How well do you understand crypto, the crypto market, and crypto’s underlying technology? And how well do you understand what motivates you as a crypto trader, to say nothing of your appetite for risk and short- and long-term investment goals?
If you’re new to crypto investing, then a great (and safer) way to gain exposure to the crypto market is through mirror trading. Not only can you make profitable trades by mirroring the trading habits of experts, you can also learn about how to invest in crypto under different market conditions, giving you a crash course of sorts in crypto trading.
However, despite its many advantages, mirror trading isn’t a foolproof path to profits. You still need to do your own research and you still shouldn’t risk more than you can afford to lose. While you may be copying more advanced trader’s moves, the fate of your crypto trading portfolio ultimately remains in your own hands.