Copy trading is a firm favorite of traders with minimal trading experience in a given market or those with inadequate trading time. Newbie traders can benefit from copy trading platforms without market assessment.
Professional traders and experienced traders, on the other hand, prefer the ease of initiating a trade without evaluating the market. Here, the post talks about what copy trading is and how it works. So, keep on reading.
An Overview of Copy Trading
Also known as social trading, copy trading is a trading strategy embraced by inexperienced investors in the financial markets. To some traders, it is a form of investing in signals, individuals, and strategy providers who invest in the market and understand the trading base better than they do.
When it comes to using this strategy for real money trading, investors should connect a section of their trading portfolios to successful traders and replicate their trades. The good thing about copy trading is that it’s possible to follow more than one provider.
When taking part in copy trading, any expert trader should perform personal analysis on a given market or position before investing. It is worth noting that the invested capital is at risk of loss even when following tips from different traders with more knowledge and experience.
A Short History of Copy Trading
Copy trading history dates back to 2005. During this period, traders used to copy particular algorithms developed via automated trading. Online trading sites recognised the significance of having effective trading strategies that could automatically copy trading accounts. With this update, investors no longer needed to monitor trading signals or email signals continually.
Which Stock Market Suits Copy Trading Most?
Investors can trade over a range of markets, such as indices, forex, commodity and stocks. For the various types of traders that want to get into forex markets and have limited time, copy trading is here to help because it lets them get involved with minimal technical skills.
How to Copy Trade
Several ways exist in which traders can copy trading activities from other investors. For instance, individual traders can copy all transactions, such as take-profit, trade-entry and stop-loss orders. The other option is to receive the trade notifications and copy the transactions manually.
With copy trading, investors can diversify their portfolios to incorporate a wide selection of technical indicators to succeed in the industry. Instead of investing their entire capital into a single trade, strategy, or asset, traders use several trading styles that work across multiple markets. During copy trading, it’s sensible to follow a wide range of traders or strategy providers.
The best investment strategy to incorporate in this volatile market is to consider looking out for copy traders who invest in multiple financial instruments. For instance, a trader can copy a commodity trader or forex trader. An investor can also copy a trader who uses a different time frame.
To enjoy a successful trading career, one can either be a long-term position trader or short-term day-trader within the stock market. It is advisable to consider the investors who get high volatility on their returns compared to those who earn low volatility. Lastly, opt for active traders with more frequent trades and higher trade volumes.
Note that the business model included in copy trading can be rewarding. Most copy trading services are subscription-based, where a person pays a certain amount to copy a trade per week or even a month.
How Copy Trading in Forex Works
Forex copy trading is the most utilised in the financial market because it’s the most liquid and largest worldwide. Some online brokerage firms provide a unique trading software for forex copy trading to allow investors to follow their actions in the hope of having a successful career.
Automatic cryptocurrency trading is now standard across cryptocurrency copy trading platforms due to widespread instruments, such as Bitcoin and ripple. All in all, these markets can present a high risk score and be volatile simultaneously.
The Benefits of Copy Trading
Copy trading is popular among investors because of the many benefits it offers. Here are the advantages:
As the saying goes, investors who avoid placing all their eggs in a single basket have a higher chance of succeeding in life. Here is where copy trading comes in handy in the stock market. It lets one choose amongst diversified social trading platforms and techniques designed from a combination of the leading traders.
- Know how Others Succeed
Copy trading gives one a unique way of learning how global markets function. Learn from professional investors who use top trading software. They also have outstanding trade signals and analytical tools for trading stocks, forex, crypto, hedge funds and other financial instruments.
- Trade with Limited Market Experience
When embarking on the trading journey, traders can immerse themselves into the business without learning much about crypto copy trading platforms or even the cloud-based crypto trading platform. The only thing one needs to do is follow experienced investors because one will be successful if they do well.
- Protect Capital
Copy trading acts as a perfect risk management strategy for beginner traders. Some accounts have protection functionalities that evaluate the investors’ behaviour. It automatically removes them when it identifies the trading preferences are deviating from the anticipated loss profile. This way, the investor is in safe hands.
- Creation of a Passive Investment
Creating and monitoring copy trading is seamless because a trader only needs to follow other traders’ techniques, risk appetite and investment levels. Above all, it is something individuals can do during their convenient time.
- Saving Time
Traders save plenty of time because the chosen trading signals will monitor and trade on their behalf. As a result, people can spend this time on their hobbies.
Copy Trading vs Mirror Trading
Minor differences exist between the two terms. Merely put, a mirror trader will mirror or mimic other traders’ trading techniques. Previously, investors shared their trading history and fancied special algorithms.
During this period, traders incorporated their independence of investment research to assess algorithms with stunning returns and then copy the acquired results. It’s worth noting that copy trading originated from mirror trading.
How Profitable is Copy Trading?
Provided one finds a successful trader to copy, getting a high yearly profit is possible. Nonetheless, market risk is one of the leading drawbacks a trader faces during copy trade. If the copied trade fails, investors lose their investments. Also, investors have to endure liquidity risk when the trading instruments experience illiquid conditions.
- Market Risk
It defines the risk of loss that originates from security price changes. Investors can use the asset allocation strategy to protect themselves against market risk. In simple terms, it means a trader needs to allocate only a portion of their capital to a specific plan to experience an ideal return on investment.
- Liquidity Risk
It shows that a trader has limited prospects of exiting positions at anticipated levels. Trading strategies should have historical precedence and risk management plans so investors can assess the copy traders’ historical maximum drawdown, which is a vital figure that shows the maximum figure the traders can comfortably lose at any moment if they use the strategy.
It’s also essential for traders to collect information regarding the products and asset classes they invest in because all instruments contain different liquidity levels. For instance, exiting positions in the EUR/USD pair is more accessible than liquidating the evolving currency pairs.
- Systematic Risk
The emerging market currencies face systematic risks most, meaning a trader’s money can get locked, making it difficult to exit the positions. Previously, it happened, and the capital was locked up while countries were overthrown. However, this strategy is currently rare.
How to Find Good Traders to Copy
While it is human nature to copy an investor with an annual return of over 300%, remember that they are taking excessive risk. Instead, one needs to consider investors with at least one year of trading history and a return that ranges between 10% and 30%.
The chosen trader should be sufficiently active by placing at least one trade every week. This indicates the trader is trying cross-device trading instead of locking the entire savings in one trade. For a much better conservative trading, it is sensible for investors to minimise the risk by spreading the copy trade between two and three different investors.
Copy Trade with Tixee
Tixee is a regulated global online brokerage firm famous for giving investors a wide selection of trading platforms. Tixee is a perfect choice for copy trading both from mobile and desktop devices. Here is how one can initiate copy trading on the forum:
- Open an account on the site.
- Verify your account
- Deposit funds into the account.
- Look out for traders to copy.
Tixee also offers technical indicators, alerts and trading signals. These features allow traders to receive notifications regarding market behaviour. These indicators assist investors in evaluating the historical price action and make proper predictions.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.