Copy Trading: Pros and Cons

What Is Copy Trading?

As the name implies, copy trading is the act of copying trades from successful traders known as master traders. Less experienced traders or newbies can now make profits from the financial markets without doing the arduous work themselves. Your account is connected to the master trader whose trades you want to copy, so every action the experienced trader takes gets replicated in your trading account. In this article, we will see how copy trading works and what are pros and cons of copy trading.

How Does Copy Trading Work?

First of all, you have to select the master trader from whom you want to copy trading. Then if the master trader buys or sells, the trading platform will automatically place the same trades on your account. You need to specify criteria like the amount you wish to invest and the level of risk you are comfortable with. Before venturing into copy trading, all traders are advised to be careful as not every master trader is successful and the rate of scams is high. 

Is Copy Trading Safe?

Well, this depends on the master trader you choose to copy from. If the master trader is highly knowledgeable and can turn out more profitable traders,  then copy trading is safe. Also, financial markets are ever-changing and volatile. No one can always make profitable trades, there will be some losses too!  Don’t assume that just because a trader is profitable at one point in time that it is the best time to copy them.

You win when your trader is successful, and you lose when he or she loses. The best you can hope for is to locate a trader with a good reputation, but even that cannot ensure anything. Due diligence must therefore be taken before copying someone, for this reason. Avoid following anyone in a blind panic. Check out the trader’s prior results.

Pros of Copy Trading:

  • It is a good way to make money
  • Requires less knowledge and commitment to gain profits
  • It eliminates emotional trading decisions from your end.
  • No need to spend hours learning all the technical and fundamental market knowledge
  • Extra skills like knowing how to read charts are not crucial
  • You’re free from additional stress or pressure
  • You can trade with your 9-5 job or business without worrying about anything

Cons of Copy Trading: 

  • You will lose when the master trader loses
  • It is difficult to find master traders who are genuine and reliable
  • Most of the master traders are not profitable ones
  • You have no control over the risks.0
  • If you keep using copy trading, you won’t be able to analyse the market; hence, you won’t learn skills on your own.

Both newbies and seasoned traders who want to diversify their portfolios may find copy trading to be a helpful tool as they learn the market. It’s crucial to keep in mind, though, that copy trading has its own risks. In addition to conducting research on the traders you want to copy and being aware of the costs and rules associated with copy trading, traders should always exercise due diligence. Further, it’s critical to diversify the traders you’re copying from and have a solid risk management strategy.