Investing in the financial markets often requires time, understanding, and expertise. Normal investors cannot analyze the market on their own without in-depth knowledge. In such a situation, copy trading has opened up avenues for new investors. In this, you can automatically copy every decision made by experienced traders in your account. This makes it feel as if an expert is trading the market with you. FXTM’s report also shows that it does not require deep market understanding. Even beginners can make good profits by choosing the right trader. From this point of view, copy trading is reassuring for novice traders.
What is copy trading?
Copy trading is a portfolio management strategy that allows you to directly copy the trading positions of another professional trader in your account. When the selected trader opens or closes a new order, the same action takes place in your account as well. It is also called social trading or mirror trading.
For example, if an experienced investor buys a stock, your platform will also buy that stock in your account to the same extent. In this way, one can participate in market movements without reading the charts in depth. This creates a community in itself where investors share strategies and experiences.
How does copy trading work?
First of all, you choose a reliable copy trading platform and start following one of the experienced traders available on it. Then you decide how much of your account you will allocate for copy trading. After that, the platform starts replicating every new trade of the original trader in your account in the same proportion.
For example, if you have set 10% of the investment amount for copy trading, then any new order of the original trader will be replicated in your account in the same 10% ratio. Most platforms do not charge any additional fee for this service; your commission is the same as in regular trading. If you want, you can stop this copy relationship at any time and trade on your own.
Benefits of copy trading
Copy trading offers many advantages. The biggest advantage is that
- It does not require you to have deep knowledge of the market. You can connect with experienced traders even without expertise. Once you choose a trader, your platform automatically replicates their every trade, so you do not need to constantly monitor the market.This reduces the time spent on investing.
- You can also split your investments by following several different experienced traders. This way, if one trader makes a loss, the profits of the other traders can protect your total investment.
- Copy trading is a great learning tool: you learn new strategies by watching the decisions of experienced traders.
Copy trading for beginners
Copy trading can be very helpful for new traders. Institutions such as EBC Financial Group say that it gives beginner investors a simple way to learn the strategies of professional traders. In this, you just have to choose an experienced trader and imitate their trades. This does not require learning every technical aspect of the market yourself. It is wise to start with a small investment amount at the beginning. If you start copy trading with a small capital, your losses will be limited even if you make a mistake.
Copy trading strategy
To get better results in copy trading, it is important to follow a strategy.
1. Choose a reliable trading platform
Reputable platforms offer transparent profiles and performance histories of experienced traders. Keep your capital limited in the beginning so that the learning cost is controlled.
2. Split your investment
By following more than one successful trader, you spread the risk. This allows the potential losses of one strategy to be offset by the profits of another strategy.
3. Use the risk management tools available
Stop-loss orders and other limit settings on the platform can help you keep your losses under control. Along with these measures, it is important to regularly review the performance of the traders you are following. Keep checking their success from time to time, as the past of one trader does not always guarantee the future.
Top copy trading platforms
Many leading platforms in the market offer copy trading. eToro is often considered the most excellent copy trading platform. Over 2,300 instruments can be traded on it, and the interface is intuitive. ZuluTrade is also popular, as it shows the top performers through its detailed ranking system. Trading applications such as MetaTrader 4 and MetaTrader 5 are also widely used. They support third-party trading robots (EAs) and are available on many brokers’ platforms. Pepperstone and other brokers offer copy trading services on MT4/MT5 and cTrader. Some new options are also emerging; for example, Pocket Broker copy trading is a platform where anyone can replicate the trades of experienced traders on their own account. In these convenient apps, you can watch the actions of expert traders live and copy them.
Is copy trading profitable?
This decision depends on several factors. Some studies suggest that guided copy trading can give investors 6-10% higher returns than manual trading. This means that good profits can be obtained by adopting the right strategy and choosing the appropriate trader. However, copy trading is not a guarantee of profit.
Research by IBM and MIT shows that even when copy trades are successful, their returns are slightly lower than those of trading on your own. This is because past good numbers are not a guarantee of future results. Basically, copy trading also carries risks like market volatility. Let’s say an experienced trader is consistently doing well, but suddenly there is a big change in the market; then your portfolio can also be affected.
So always remember that capital is at risk even in copy trading. Investors should only invest the amount that they can afford to lose. Overall, copy trading can be a powerful tool, but it should be used with discretion and caution. Choose the right traders, keep your investments diversified, use risk management tools, and keep reviewing your followed traders from time to time. With these precautions, you can reap the benefits of copy trading while also controlling potential losses.
