Copy Trading

What is Copy Trading?

Copy trading is a kind of social trading where investors follow active traders in real time and copy their trades. This type of trading is ideal for individuals who either cannot dedicate the time needed to manage their portfolios or lack the necessary skills, yet still want to trade in markets like stocks, forex, or cryptocurrencies.

How Copy Trading Works

Generally, copy trading is a straightforward process and takes on the following key steps:

Choose a Trading Platform

There are several copy-trading platforms, and it‘s up to you to choose one that suits your needs. For instance, eToro and ZuluTrade are some of the platforms that enable users to copy other traders.

Select a Trader to Copy

Customers can browse a list of traders on the platform who are recognized as professionals or experienced by other users. This list includes public information such as the traders’ historical performance data, success ratios, levels of risk taken, and the asset categories they track. Investors can review these metrics and select a trader whose strategy aligns with their own goals and risk tolerance.

Allocate Funds

Once the followers are satisfied with the trader they wish to follow, they then decide how much of their available funds they will allocate to copying that trader’s trades.

Automatic Trade Replication

The platform will start the process of replicating the instructions of the expert trader in the follower’s account regarding the purchased assets once funds have been set aside. When the trader’s strategy involves selling or buying an asset, the follower’s account does this as well. If the trader generates income, the follower of the trader shall earn some funds proportional to what he/she has invested in copy trading.

Monitor and Adjust

Followers can track and observe the post-performance of the trades that have been copied and can change and modify them.

Benefits of Copy Trading

Certain features of copy trading come in handy, particularly for beginner traders or those who want to change their strategy:

• Copy trading allows any new entry to the market without the burden of acquiring huge technical know-how, charts, drawings, or even advanced trading methods. They can use the services of hands-on traders and still be able to access the markets.
• Because all transactions are executed instantly without lag, trading in a copy follows suit in levels. This hands-off feature appeals to people who want to be in the market but have no time to do the work of management.
• Investors can lessen concentration risk in their portfolio by following more than one trader who trades in a different asset class or strategy.
• Most providers of copy trading services give followers information on the past performance of the trader following their copy and the history of trading by the expert to the kingdom.

All these make copy trading an alluring method of investing in trading.

Risks of Copy Trading

Like most strategies, copy trading offers certain advantages and some disadvantages that an investor must take into account. When an investor engages in copy trade, all trades are made by the trader being copied, since copy trade is a passive strategy.

This can be annoying to some people, particularly investors who would like to take action or change some trades when they think it is the right time. In several copy trading services, the user is charged a fee, or profitability is subjected to a fee. Both of these approaches lower the profit margin. All these costs should be taken into consideration while estimating the possible earnings.