If you are a beginner with limited market knowledge, copy trading can be a perfect way to get started. Rather than investing your time and energy in learning the nitty-gritty of the market, you can climb the ladder of success by copying the trades of an experienced trader. Sounds interesting, right?
Let’s get into the details and understand what copy trading is, how it works, its pros, cons, tips for copy trading and the best forex copy trade to start with.
What Is Copy Trading?
Copy trading, also known as social trading, is an innovative trading approach in which traders can copy the trades of other traders in real-time. This allows traders to benefit from the experience and expertise of successful traders without having to do their own research and analysis.
The concept of copy trading started in 2005. Before that, traders used to convey their intention to open or close a position through email or virtual chat rooms. Then the concept of automated trading was born in which the traders used to share their trading history so that other traders could follow. This was soon followed by a new method of trading called “Copy trading” Find More
How Does Copy Trading Work?
Before we get into the working of copy trading, it is important to understand the terms used for the two parties involved:
- Copier or Investor: The trader who is following or copying the trades of another trader
- The provider or Copied trader: The trader whose trades are being copied.
In the forex market, copy trading typically works through specialised software or platforms that connect copiers and providers. These platforms often allow traders to view different providers’ track records and performance metrics, such as their historical profits, win/loss ratios, and risk management strategies.
Once a trader has identified a provider whose trading style and performance align with their own risk tolerance and investment goals, they can invest some amount in a certain trader and connect their trading account to the provider’s account to automatically copy their trades.
Once you begin copying a trader, you’ll have full or partial control on your account depending upon the platform you’ve chosen. With some online copy trading platforms, the only course of action you can take is deciding when you want to follow or stop following a trader. However, some platforms give you liberty to set your stop loss, take profits, decide the amount you wish to invest and freedom to close trades manually.
Moreover, while copy trading, it is suggested to keep your funds diversified. If you are satisfied with the results you get by following a trader, consider increasing your funds. In the same way, if copying from a particular trader doesn’t seem worthwhile, you can unsubscribe to that trader and invest your money with a trader who is showing better results. This way you can increase your profits and reduce the risks.
Requirements For Copy Trading
If you want to engage in copy trading in the forex market, you should take into account the following requirements:
- Trading account with a broker: To participate in copy trading, you will need to have an active trading account with a broker that offers copy trading services.
- Internet connection: Copy trading requires a reliable internet connection to ensure that trades are copied uninterrupted from provider’s account to the copier’s account.
- Capital: Before you begin copy trading, you should have sufficient capital in your account to cover the trades you intend to copy. Some platforms don’t impose minimum deposit requirements so you can decide how much you want to invest based on your risk tolerance. However, some platforms may require you to invest a specified amount in order to copy the trading positions of another trader on their platform. You should make sure that you have the required capital.
Advantages & Disadvantages Of Copy Trading
Advantages:
- Ideal for beginners and experienced traders: Copy trading can be useful for novice traders who are still learning the ins and outs of the market and more experienced traders who want to diversify their portfolios or access new trading strategies.
- Reduced risk: By copying the trades of successful traders, traders can potentially reduce their risk and increase their chances of success.
- Time-saving: Copy trading can save traders time as they don’t have to spend hours researching and analysing the market.
- Diversification: Following multiple providers with different trading styles and strategies can help diversify a trader’s portfolio and spread risk.
- Easy to start: Copy trading is easy to start and requires minimal capital.
Disadvantages:
- Risk of losing money: Copy trading does not guarantee profits and traders can lose money if the providers they follow perform poorly.
- Reliance on experienced traders: Traders may become dependent on the providers they follow and may not develop their own trading skills.
Things To Keep In Mind During Copy Trading
- Understand the risk: Copy trading does not guarantee profits, and traders should only invest what they can afford to lose. Understand the level of risk involved and make sure it aligns with your own risk tolerance.
- Research signal providers: Thoroughly research and understand the signal providers you choose to follow. Look at their historical performance, and risk management strategies and test them in a demo account before committing real money.
- Diversification: Diversify your portfolio by following multiple signal providers with different trading styles and strategies. This can help spread risk and increase the chances of profitability.
- Monitor performance: Continuously monitor the performance of the signal providers you follow and be prepared to stop copying them if their performance deteriorates.
- Don’t rely solely on copy trading: Copy trading is not a substitute for your own research and analysis. Traders should always use their own judgement and not rely solely on the trades of others.
- Be aware of the market conditions: Before you start copy trading, it’s important to be aware of the market conditions, such as the economic calendar, news, events, etc. These factors can significantly impact the performance of the trades you are copying.
FAQs
How can an experienced trader earn using Copy trading?
Experienced traders can create and share their copy the best traders strategy so others can follow and automatically replicate their trades. Experienced traders then receive a commission or a share of the profit, which maximises their profit potential
Can copiers follow more than one strategy provider?
Yes, copiers can follow multiple strategies at once.
What is the minimum amount needed to start copy trading?
The amount will depend upon the copy trading platform one wishes to use.
