Copy Trading (CT) is a trading strategy that first surfaced in 2004 when traders began to copy specific algorithms built for automated transactions. Over the last 17 years, the technique has grown in popularity, and experts have highlighted both its benefits and drawbacks.
How does Copy Trading work?
The method’s name speaks for itself, so newcomers quickly grasp that Copy Trading is all about duplicating the transactions of other traders. What are the drawbacks of such a strategy? The forex market is regarded as one of the most rewarding investment vehicles. This implies that newcomers to the business are looking for a way to make money.
The following data are revealed by trends in Forex records:
- More than a third of traders with less than a year of experience feel the financial markets are overly complex. For many traders, copy-trading is the only realistic option.
- Profits from the CT technique exceeded $50 billion in 2020, and this amount is anticipated to rise to $80 billion by 2025.
What does Copy Trading mean?
The method works as follows:
- Choose the right Copy Trading platform. This is the first and most important step. The foundation you will depend on for your future success. To make the right decision, study the public ratings of the platforms, check user comments, and read reviews of experienced traders.
- Select a trader whose goals are the same as yours and subscribe to them. Take into account the number of subscribers, trading data, earnings, risk level, return on original investment, and other considerations.
- Establish a fund for your portfolio. Keep in mind that your possessions should not be an impediment to your everyday life. Determine how much money you should invest. Copy Trading – how to start? This is a typical concern among beginning traders, and experts encourage them to follow the examples of successful traders. Divide your investment budget across two or three traders.
- Choose the most effective Copy Trading solutions. While receiving indications, some traders manually begin and stop transactions. Numerous different investors, on the other hand, want the process to be automated. There is also a semi-automated mode available.
- Invest more money if the outcomes meet your needs. In the case of a loss, choose a different trader to follow.
Top Five Benefits of Copy Trading
- The approach is advantageous to newcomers. If you’re new to the business and don’t know what you’re doing, replicating other traders’ actions is a great method to understand how the market works.
- CT is a feasible method for earning when a trader can’t grasp the FX market operations and experiences losses.
- Copy Trading saves traders’ time because orders are placed by sophisticated software. As a result, the technique can be utilized as a substitute to active investment.
- Investors do extensive strategic planning when they study a professional trader’s statistics, methods, and other aspects to determine if they are ready to invest their time and money with a trader.
- Keep your losses in check. When your performance does not meet expectations, it is easy to shift your attention to other traders.
The major drawbacks of this technique
When people discover more about how to do copy trading, the method looks incredibly easy, vivid and enticing. Meanwhile, take in mind the following drawbacks:
- Experienced traders could also have a bad run, that’s why there is a risk of losing your money.
- Manual Copy Trading requires traders to have accessibility to the market 24 hours a day, 7 days a week. If you want automated transactions, you should have software ready at any and all circumstances.
- The approach includes some charges because the vast majority of effective traders demand fees on successful deals.
As a result, consider the benefits and drawbacks of copy trading to see if it corresponds with your values and expectations. And be sure to choose the right Social Trading platform.