As the world of finance continues to evolve, many investors are looking toward alternative forms of investment. One such avenue is copy trading, a method that allows investors to mimic the trades of successful traders in the hopes of achieving similar returns.
Big investors are cautious as the perfect economic storm threatens. Pension funds, family offices, and pioneering hedge funds are investing in bitcoin as a hedge against unprecedented quantitative easing.
These institutional participants require a trading platform that meets new rules and offers equivalent protection to existing financial houses to settle and profit from the bitcoin gold rush.
While copy trading can be a profitable investment strategy, it also comes with its own set of risks, making it essential to choose a regulated copy trading platform to mitigate these risks. In this article, we'll explore the risks of copy trading, the importance of regulated copy trading platforms, and the different regulatory bodies that oversee these platforms. We'll also delve into the recently proposed regulatory regime for crypto-assets in the UK, known as MICA.
As we mentioned, and as is the case with all investment ventures, copy trading comes with its own set of risks, and it is not safe from losses. Even experienced traders are not truly safe from losing out on trades.
Another risk of copy trading is the potential for fraudulent traders, or ones trying to use the assets of their investors to pump smaller coins, sacrificing them for personal gain. While regulated copy trading platforms implement measures to prevent fraudulent traders, there are still unscrupulous individuals who may try to take advantage of unsuspecting investors.
Unlike traditional fiat currencies, cryptocurrency is managed and controlled by cryptographic keys. The safekeeping of these keys has presented a challenge for custodians, and if a cryptocurrency transaction is authorized with a stolen key, it cannot be reversed as it is permanently recorded on the blockchain.
The inherent security risks associated with cryptocurrencies have made them a prime target for thieves, resulting in several high-profile security breaches in the past. These incidents, including the infamous Mt. Gox hack, have raised concerns among institutional investors who are bound by fiduciary laws to work only with regulated custodians to manage their larger capital amounts.
To address these concerns, registered cryptocurrency platforms like ICONOMI must maintain a high-security standard akin to traditional financial institutions. To ensure adequate protection against the most powerful hacks, ICONOMI employs a multi-layered security approach for both the users’ personal accounts and information as well as their assets. Many systems and multiple verification systems are also available on the platform, such as 2FA, which users can use to safeguard their accounts.
As with banks, customers must complete the Know Your Customer (KYC) verification. This identification process ensures that only verified and known customers have access to the platform.
In short, the ICONOMI platform ensures its customers' funds are secure by meeting the same security standards as traditional financial institutions. By employing a range of security measures, such as cold storage wallets, regular code reviews, and KYC verification, the platform provides a secure and reliable environment for customers to trade and invest in cryptocurrencies.
Different regulatory bodies govern copy trading platforms in different regions. In the US, the Commodity Futures Trading Commission (CFTC) regulates copy trading platforms, while in the UK, the Financial Conduct Authority (FCA) oversees these platforms.
The FCA is a regulatory body in the UK that oversees the financial industry to ensure that it operates in a way that is fair, transparent, and in the best interests of consumers. The FCA has jurisdiction over trading platforms that operate in the UK and has the power to enforce rules and regulations to protect consumers.
Choosing a regulated copy trading platform is essential to mitigating the risks of copy trading. Regulated platforms are licensed and supervised by regulatory bodies, and as a result, they have to comply with various rules and regulations to ensure the safety of their users' assets and personal information.
Regulated platforms also provide transparent information about their traders' performance, fees, and risks. This information is crucial for investors to make informed decisions about which traders to copy and how much to invest.