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Copy Trading – Benefiting from the Experience of the Professionals 

Copy trading has become a fairly popular concept in recent years. And today one can copy trade forex easily, thanks to the variety of platforms that offer copy trading services.

In simple words, copy-trading allows you to copy the trades of another trader.  The amount to be invested is decided by you and the positions are opened and closed according to positions opened and closed by the master trader automatically on the copy trading platform. Copy trading allows you to make profits without having any expertise and knowledge about trading. 

The idea behind copy trading is easy to understand. Copy trading is referred to as letting an experienced trader execute his/her trade and then mirror it to other traders. This allows opening and closing of exact same positions as executed by the experienced trader automatically. In this process the experienced or the seasoned trader is known as the master trader, whereas the trader who is copying the trades of these experienced traders are known as investors or copiers. 

Copy trading came into light with the aim of helping new and inexperienced traders to make profits from other’s trades. But today even the experienced traders opt for copy trading the trades if they do not have time to execute their own trades.  

Participants in Copy Trading:

There are four main participants in copy trading-

  1. Broker: Brokers offer a copy trading platform that allows traders to initiate copy trading. Not all the brokers offer this service. So, if you want to opt for copy trading, find the broker that offers copy trading service.
  2. Trading Platform: Copy Trading platform is where the traders and investors create accounts and the trades are executed. 
  3. Master trader: Master trader is also known as seasoned trader or experienced trader. Master trader is one who has extensive trading experience and has been in the market for a long time. 
  4. Investor/Copier: Investor is the one who copies the trade from the experienced traders. They are the ones who are either completely new to the market or do not have sufficient time to be an active participant in the market and execute their own trades.

Mechanism of Copy Trading:

The whole concept of how copy trading works is simple to understand. It involves signing up with the broker who offers copy trading service as its first step. Before you sign up for copy trading, read their terms and conditions of the copy trading platform. Also look at the trading strategies used by the traders and check their commissions

After you have signed up, deposit the funds in your account and pick a suitable trader to copy trades. Anytime the master trader opens a trade it will automatically be copied on your trading account and an exact trading position will be opened.

Financial Assets That Can Be Copy Traded:

A wide range of financial assets can be traded on a copy trading platform that mostly depends on the assets that are offered by your broker. The financial markets that can be copy traded are:

  1. Forex market
  2. Stock market
  3. Cryptocurrency market
  4. Indices
  5. Commodities

Key Things to Consider While Picking a Trader for Copy Trading:

  1. Return on investment: Also known as ROI is an upfront way to calculate the profitability of the trader. A consistent profitability of the trader is indicated by a smooth, ascending profit trend.
  2. Profit/loss ratio: It is more precise than ROI method. This exactly tells how much profit has been made and how much is lost in a set period of time. Investors should consider looking into the past 7 days profit/loss ratio while choosing a trader. 
  3. Cumulative follower profits: This helps traders to know how much profit in total the master trader has helped his followers to gain. Prefer using traders with high cumulative follower profits.
  4. Trading history: Review the trading history of the trader. This gives you a better understanding of the trader’s behaviour and underlying logic behind his trades. Reviewing the trading history helps in understanding whether the trading style of the trader aligns with yours. 

While looking into these factors, also consider visiting the profile of the trader and check out other statistics like trading frequency, average position holding time, risk score of the trader, consistency, and level of the trader. 

Benefits of Copy Trading:

  1. Copy trading is the best way if you are looking forward to diversifying your trading portfolio and want to get exposure to the market you are not familiar with.
  2. Allow new traders who do not have any knowledge or skills to trade the financial market manually.
  3. Copy trading can help new traders to learn trading by observing the experienced trader.
  4. Investors can choose the trader they want to follow based on their preferences and goals. 
  5. It can help in making profits in the long run.

Understanding the Risks Involved in Copy Trading:

There are certain risks that are involved in copy trading like market risks, liquidity risks, etc. Understand that a seasoned trader is not perfect and has the possibility of making mistakes. Moreover, your success depends on the success of the trader that you are following. 

How is Copy Trading Beneficial?

Copy trading is a great way of making profits for beginners who do not have required expertise and knowledge about the market. They can even dive into trading cryptocurrencies and also learn trading by observing the trades being placed by the seasoned trader. 

Traders who do not have sufficient time to manage their trading portfolio find copy trading an excellent way of exploring new trading strategies.

Copy trading is a fine way of gaining exposure to the markets regardless of your experience and expertise. However, to be profitable you should do your due diligence while picking the trader you want to copy the trades from.