Copy trading is a form of investment that involves copying the trades of other traders. Today, many brokers offer copy trading with a variety of features.
In copy trading, the only research you need to do is to find a profitable trader on a copy trading platform.
Most platforms offer a simple way to filter through the trading results of experienced traders, making it easy to find the one that best fits your trading style and risk tolerance.
When a trader that you follow opens a trade, the copy trading platform opens the same trade on your account, automatically. You may also choose how much of your capital you want to allocate to a trader,as well as your total risks per trade.
For example, if a trader opens a buying position on gold with 5% of his trading account size, the same trade would appear in your trading account. You may limit the risk per trade to any level you want in case you’re more risk averse than the trader you follow.
There are several different types of copy trading, such as mirror trading and social trading. Let’s check the similarities and differences of each of them.
Most traders who want to copy the trades of other traders are predominantly interested in the trading performance that they are able to achieve, not so in the markets that are traded. However, if you want to focus your copy trading solely on cryptocurrencies, you can do so.
Cryptocurrencies are relatively new in the world of finance and professional traders who follow the crypto ecosystem usually have a deep technical knowledge of the products. It makes perfect sense to copy the trades of cryptocurrency traders, especially if you don’t have the necessary experience to trade them on your own.
Copy trading sounds fantastic – you automatically replicate the trades of professional traders without much work and get to enjoy the trading results. However, most of the time, there is no free lunch in the markets. Here are the main pros and cons of copy trading.
💎Pros:
• Automated trading: The main advantage of copy trading is the ability to automate your trading by following other profitable traders. The only effort you need to make is to find a profitable trader with good trading results, and periodically review the performance of the trader.
• Finding traders: This leads us to the next advantage of copy trading – the simplicity of finding a profitable trader. Most copy trading platforms allow you to filter through different metrics on their website, including trading results, profit & loss, the average size of winning and losing trades, average risk per trade, reward-to-risk ratios, and more.
• No emotions: better trading: If you’re new to trading, you may have experienced that emotions can have a big impact on your trading results. With copy trading, emotional trading becomes a thing of the past. Since you don’t have to analyze the market and trade on your own, there are no emotions involved.
💎 Cons:
• The (in)ability to control risk – As you may guess, the main drawback of copy trading is that your trading performance is completely dependable on the trading results of the traders you follow. If they make a bad trade, that bad trade will also appear in your trading account. To bypass this major drawback, copy trading platforms allow you to set how much you want to allocate to any single trader, and to pre determine how much you want to lose on any single trade. You can also interfere and manually close a trade if you feel that the copied trade isn’t as good as it could be.
🌿 Is copy trading considered to be profitable⁉️
In copy trading, your trading results fully depend on the trading performance of your followed traders. That is, if you’re following a trader who has a long term track record of good trades, you’ll probably do well. Here are a few risks that you’re exposed to when copy trading.
💫 Market risk
The most notable risk of copy trading is market risk. Every live trade is inevitably impacted by a variety of market forces that ultimately determine its outcome. In copy trading, market risk is the risk of changing prices in Forex, stocks, interest rates, and other assets that can negatively impact your copied trades.
Don’t confuse market risk with poor trading. Every professional trader has to deal with market risk which can lead to trading losses. However, professional traders usually understand major market forces and try to mitigate market risks as much as possible.
For example, a professional trader may choose not to trade during releases of high-impact news or during illiquid Forex market hours. Markets are often extremely volatile during important news releases, such as monetary policy decisions on non farm payrolls.
🔹️ HOW To Start COPY TRADING ⁉️
• Open a trading account – Opening a live account with a copy trading provider is the first step of copy trading. The process is quite simple and straightforward. Fill up the registration form, make your initial deposit, and once your account gets approved you can start following profitable traders.
• Choosing a trader – Now that you have a trading account in place, it’s time to choose a trader to follow. This is usually the most time-consuming part of copy trading, but fortunately, most copy trading platforms allow you to quickly filter through important trading metrics and select the best traders out of their database.
When choosing a trader, it’s easy to make the mistake of focusing too much on a trader’s performance. There are other factors that you also need to take into account, such as the risks the trader takes to achieve his results, the traded markets, the average winners and losers, and the winning percentage, to name a few.
• Follow the trader – Once you have found an interesting trader, copying his trades is as simple as hitting the “follow” button.
P.S. Some copy trading platforms may ask you to choose how much of your funds you want to allocate to a specific trader, which helps keep your risks under control.
GOOD LUCK FRIENDS🤗
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