Copy trading is a popular style that allows traders to follow and automatically replicate the trades of successful traders. It’s a beginner-friendly approach to trading, as it enables those with little or no trading experience to benefit from the expertise of seasoned traders. By copying the trades of others, anyone and everyone can earn profits without having to spend time analysing the market or executing trades manually. In this step-by-step guide, we’ll cover the basics of copy trading, including how to choose a platform, select a trader to follow, and set up your account for success. Know More
What Is Copy Trading?
Copy trading is a popular form of online trading in which an investor copies the trades of another trader in real time. It allows traders to piggyback on the success of experienced traders who are already quite successful in their trading venture without actively monitoring the markets. The process of copy trading involves using a specialised copy trading platform or service that connects traders. The platform automatically mirrors the trades of the trader being copied into the account of the investor copying them. Depending on the platform, you can copy trades manually or automatically.
But these days, automated copy trading has become a norm with the growing popularity of trading automation in the trader’s community. The ability to get trading results with minimal effort surely attracts a lot of beginners into the world of trading. However, it is important to note that copy trading also carries some risks. Investors should carefully research the traders they plan to copy and the platform they are using to ensure that they are reputable and trustworthy. Additionally, investors should always be aware that there is no guarantee of success and that past performance does not always indicate future results.
How To Copy Trade In Simple Steps?
Step 1: Choose A Reliable Copy Trading Platform
The first step to copy trading is to choose a reliable copy trading platform. Ensure the platform is trustworthy and offers the features you need to copy trade. Then you must sign up with a brokerage that allows copy trading on the chosen platform. Popular copy trading platforms will give you a lot of options when it comes to choosing a broker. Click to check how to start white label brokerage work.
Step 2: Select A Successful Trader To Copy
Once you have chosen a copy trading platform, browse the profiles of traders on the platform. Look for traders who have a good track record of profitability, have low-risk strategies, and have been trading for a long time. You can analyse their trading history, risk management, and other key information.
Step 3: Set Your Risk Management Preferences
Before copying a trader, set your risk management preferences. This includes deciding how much money to designate to the trader and making use of the risk management tools that are available on the copy trading platform.
Step 4: Copy The Trader
After you have selected a trader for copying and state your risk management preferences, you can proceed with copying their trades. This can be done by clicking on the follow or copy button on the trader’s profile and following the instructions provided by the platform.
Step 5: Monitor And Adjust Your Trades
After copying the trader, you should monitor and adjust their trades as necessary. This includes reviewing your risk management settings and analysing the trader’s performance. You should also be prepared to exit the trader if their performance deteriorates.
Pros & Cons Of Copy Trading
Pros of Copy Trading:
- Easy and Convenient: Copy trading allows traders to replicate the trades of successful traders without having to spend time analysing markets and conducting their own research. It can be an easy and convenient way to start trading, particularly for beginners.
- Diversification: Copy trading can allow traders to diversify their portfolios by following multiple successful traders. This can spread risk and reduce exposure to market volatility.
- Learning Opportunity: Copy trading can be a valuable learning opportunity for novice traders. By following and analysing the trades of experienced traders, they can learn about different trading strategies and techniques.
- Saves time: Copy trading can save traders a lot of time by eliminating the need for market analysis and research. This can be particularly helpful for traders with other commitments who can devote little time to trading.
Cons of Copy Trading:
- Lack of Control: Copy trading means relinquishing control over your trades to someone else. This can be problematic if the trader you are copying needs to make better trading decisions that result in losses.
- Hidden Costs: Some copy trading platforms may charge hidden costs, such as forex commissions or fees for copying trades. These costs can add up over time and reduce the profitability of your trades.
- Limited Customization: When you copy another trader’s trades, you are limited to their specific trading strategy and may be unable to customise your trades to fit your investment goals or risk tolerance.
Copy Trading Vs Social Trading
- Copy trading is a form of trading automation where traders can mimic the trades of other successful traders. Social trading is more of a platform where traders can interact, share ideas, and follow each other’s trades.
- In copy trading, the copying process is done through a software platform that allows traders to replicate the trades of another trader’s account. In social trading, there is much more than just copying trades. It allows traders to learn from each other, share knowledge and experience, and collaborate to improve their trading strategies.
- Copy trading is typically a passive strategy that requires little knowledge or experience in the markets. Social trading platforms often have features like discussion forums, news feeds, and leaderboards to facilitate social interaction.
- Copy trading can be a good option for those who want to benefit from the expertise of others without having to make decisions themselves. Social trading can be a more active strategy than copy trading, as it requires traders to participate in the platform and engage with other traders actively.
- In copy trading, there is a risk of blindly following the trades of others, which could lead to losses if the copied trader makes a mistake or the market conditions change. However, social trading can also expose traders to the opinions and biases of others, which could lead to poor decision-making or herd mentality.
Copy Trading Strategies
- Trend-following strategy: This approach entails copying the trades of traders who identify trends in the market and trade accordingly. Trend-following traders typically use technical analysis to identify market trends and enter trades as per the ongoing trend. By copying their trades, you can potentially gain from the same trends they have identified.
- News-based strategy: This is done by copying the trades of traders who rely on fundamental analysis to make trading decisions based on news events. News-based traders keep track of economic updates and data, central bank announcements, and other news events that can impact the markets. By copying their trades, you can also lock profits with the same news events they are trading on.
- Counter-trend strategy: This one involves copying the trades of traders who trade against the prevailing market trend. Counter-trend traders typically look for price levels where they believe the market is overbought or oversold and then enter trades in the opposite direction. By copying their trades, you can profit from market reversals.
- Scalping strategy: In this strategy, you copy the trades of traders who employ a scalping strategy. Scalpers open and close trades quickly, often within seconds or minutes, to profit from small price movements. By copying their trades, you can also profit from these short-term price movements. However, it is important to note that scalping can be a high-risk strategy, so it is important to choose a successful scalping trader to copy.
- What Kind of Knowledge and Skills Would Be Required for Copy Trading?
Since copy trading is only about following and copying other traders, you don’t need extensive knowledge of the financial markets or technical analysis to get started. However, it’s still important to understand the markets and the risks involved in trading.
- How to Make Copy Trading Risk-free?
While copy trading can help minimise the risk of losing money, there is no guaranteed way to make it completely risk-free.
- Is Copy Trading Better Than Self-trading?
Copy trading can be a good option for those needing more time or expertise to trade independently. It can also help minimise the risks associated with self-trading.
- Is Copy Trading Legal?
Copy trading is legal in most countries, but it’s important to check your local laws and regulations to ensure you comply with them. Additionally, it’s important to choose a reputable copy trading platform that is licensed and regulated.