Copy trading is an innovative way of trading the financial markets. It entails automatically copying the trades initiated by other traders. Before getting into an in-depth analysis of copy trading, it’s essential to understand the parties involved in copy trading.
- Provider – also known as a signal provider or copied trader, the trader whose trading patterns are being copied.
- Copier – often referred to as a subscriber or follower, a trader who is copying or following other trades.
“The goal of this person is to have similar trading positions as the provider”, says Yahoo Finance.
Copy trading is valuable for novice traders that lack time to create custom trading strategies or perform extensive research. In this case, one merely becomes a copier who replicates the trading behaviour of experienced traders.
An Overview of Copy Trading
Simply put, copy trading aims at discovering successful traders who have a proven trading track-record. When copying other trades, traders copy trades from these providers. . This is similar to mirror trading that allows an individual to copy an investor’s actual trading techniques.
Following its release in 2005, copy trading initially allowed traders to copy particular algorithmic trading strategies designed via automated trading. Designers shared their trading history, which allowed others to replicate the trading activity. This situation led to the creation of social trading networks.
In general, copy trading mainly focuses on short-term trading, especially swing trading and day trading styles. Also, it focuses on assets in the forex market, stock markets, and other volatile markets. Although copy trading could be a lucrative trading strategy, traders need to be aware of the limitations of the process to avoid potential pitfalls.
How to Open a Copy Trading Account
Traders need to deposit funds into their trading accounts before proceeding to copy professional traders. Based on the online trading platform, linking the copy investing system to the live account is often possible after receiving the login credentials. The good thing is that most trading companies offer guidelines on how to perform this.
After a successful account configuration, one can begin copying the trades straightaway. However, it’s recommended to utilise any education content on the internet before copy trading. Here is where joining one of the many online communities comes in handy as there are many threads and discussions dedicated to the topic of copy trading.
How Copy Trading Works
Copy trading allows traders to connect a section of their portfolio with others’, where any future actions and open trades get copied to their accounts automatically. This can make for an effective way to diversify a trading portfolio and spread trades across a wider range of instruments, reducing the exposure to any one asset.
Copiers need to choose the amount they wish to invest, and they can select more or less based on the providers historical and current trading performance statistics. Remember that while some brokers allow traders to handle their investment funds, others run on a fixed system. A fixed system comes with a number of restrictions.
Copy trading requires a powerful trading platform, such as MT4 and MT5. Therefore, traders should first open trading accounts with brokerage firms that possess the right trading tools, financial instruments, and technology.
After opening an account, it’s time to search for and follow successful providers. Most brokers offer a comprehensive rating page that ranks a provider’s trading track record based on their success over a period of time. The rating page comprises details of their past performance, trading options, trading modes, trading statistics, and other valuable information impacting one’s trading decisions.
Followers can rank a providers’ entire investment history to view their trade size, investment technique, losing trades, profitable trades, and general success. Social investing systems are highly functional because they allow Trader B to copy Trader A’s trades with a single mouse click.
Why Investors Should Copy from Top-rated Traders
Inexperienced traders with live trading accounts can open trading positions without having to do all the research. Here are the top benefits of copying trading services from popular traders:
- A lot of Learning
Traders with little trading know-how can learn from more experienced traders by watching their performance and evaluating the trading techniques that they use.
- Improve Potential Profit Margins
Mirroring what the top rated traders are doing can translate to replicating their profit potential too. One can easily see their social investment history and performance from a ranking list.
- Professional Insights
Skilled traders use plenty of time performing market analysis, especially technical analysis and fundamental analysis. This entails analysing the price action, market volatility, market rate, and other foreign exchange market data to predict future outcomes.
- Save Time
Copy trading is a time-effective strategy for beginner traders to trade the markets.
Copy Trading Software
Copy trading is available via a proprietary system or a third-party trading software based on the online broker. Some forex trading brokers also offer educational resources, networking forums and valuable social features.
Copy Trading with MT5
Like MT4, one can automatically replicate other trades through MT5. Indeed, both providers and copiers can register on different brokers because MT5 links traders across brokers. The performance and management fees are fixed in MetaTrader 5 marketplace.
Social Trading vs Copy Trading
Social trading shares similarities with copy trading. Regarding social trading, traders get investment ideas from various social trading networks, and they can share them amongst themselves to create new techniques. Also, they can replicate similar tools and strategies.
On the other hand, Copy traders prefer to duplicate the positions and trading settings of an individual trader and the subsequent outcomes. As a beginner, it’s practical to start with social trading to understand market trends and behavior.
Mirror Trading vs Copy Trading
Mirror trading is different from copy trading. As the name suggests, mirror trading entails mirroring a trading technique. As a mirror trader, one replicates other traders’ trading styles. Previously, traders searched for algorithms with excellent returns and copied the results after requesting access to these strategies.
It’s worth noting that copy trading originated from mirror trading. However, copy traders follow the provider directly instead of receiving their trading techniques when it comes to copy trading.
Copy Trading in Forex and Cryptocurrency
The forex market is one of the largest and most liquid globally, making most forex traders incorporate copy trading in their portfolios. Several forex brokers provide unique software for forex copy trading. This way, traders can emulate other traders’ actions hoping to profit.
Copy trading is also popular when it comes to trading cryptocurrencies, such as Bitcoin. Ethereum, and Litecoin. Just like copy trading in forex, traders can mirror trades on crypto pairings.
Copy Trading Signals
Simply put, signals are indicators used by copiers to position their trades in the market correctly. After receiving a signal, one can edit the trading settings and parameters to fit the current trades. The good thing about signals is that they provide more flexibility than automated and fixed copy trading from a popular trader profile. When it comes to executing regular trades, traders need to have the ability to edit their stop losses, trade sizes, and take-profit levels.
Copy Trading Pros
- Ideal for Beginners
With copy trading, traders have other individuals doing their research work, meaning one can immediately initiate trades. Besides, it suits traders who have limited time to commit to a full-time day of trading.
- Portfolio Diversification
Traders can get access to trends or opportunities that are inaccessible without the assistance of other traders expertise.
- Maintain Control
Copy trading gives access to multiple risk management tools. Copiers can pick from a wide range of copy methods to configure profit-take and stop-loss levels.
- Commission Fees Payable after Profits
Performance fees are payable to replicate the trading behaviour of the chosen trader profile. However, one only needs to pay commissions after profiting.
- Trade in Several Stock Markets
Copy trading is usable in different markets, such as forex, commodities, shares, indices, and metals.
Copy Trading Cons
The risks can be extreme when one picks inexperienced traders. Should the strategy fail, the risk moves the copier’s account as well.
- Minimal Control
Traders will lack control once they start copying trades as they fully entrust the provider for information.
The Best Broker for Copy Trading Accounts
As a regulated trading platform, Tixee allows traders to copy trades onto their accounts directly. Here, traders of all experience levels share strategies, tips, and knowledge on how to initiate trades. So, traders that want to see their closed trades, get access to the best trading systems, invest in several assets, and enjoy a range of platforms and assets can join Tixee today.
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.