(Copy trading can be an excellent option for investors who lack expertise in the market)
Copy trading can be a great way to diversify your investment strategy and make profits if you have a basic idea of the trading. In addition, this is an excellent option to experiment with your short-term and long-term financial goals.
It is the simplest form of trading, allowing investors to take advantage of the making of money. This trading is copying the strategy of other traders and implementing it without making any chances. In this method, traders find the best money-making opportunities without getting involved in the market. Instead, they grow from the experience of other traders.
Since this method involves copying the traits of experienced traders to increase, real-time profits and growth opportunities are far higher than any other trading method.
Copy trading is booming for those who need more expertise in the specific market and only have limited time.
So let’s understand in detail what copy trading is and how it works.
What is Copy Trading?
The form of investing which involves the copy of other traders is called copy trading. The history goes back to 2005 when the trading company Tradency first introduced automated trading.
Later, the trend got popularised with eToro and its auto trading services. Today, many online platforms offer copy trade services with various services and features.
Copy trading is simple and only involves researching profitable traders making big profits on trading platforms and copying their strategy. In most platforms, you can figure this out by knowing the traders’ experience and picking the one which fits your trading style and risk tolerance capacity.
Some traders prefer copy trade because of the new opportunities and learning exposure they get by copying the traits of other successful traders. On the other hand, some traders opt for it because they have less time for self-learning when they want to make profits.
When an experienced trader follows a trading strategy and opens trading, a copy trader’s account also follows the same strategy for you. However, you can choose the amount you want to allocate for trade and the risk tolerance percentage.
E.g., if a trader buys silver with a 5 % trading size, the same trade would be allocated to your account. However, you can set the risk limit capacity per your tolerance level.
Copy traders rely on social networks and social media platforms. When a trader opens a trading position, this information is passed to the other traders giving them convenience whether they want to open the same position.
Traders with experience in the traditional market often broadcast their position for the benefit of other traders. Forex crypto trading is one such strategy that provides benefits to other traders.
How does copy trading work?
Copy trading can be an excellent option for investors who need more knowledge of the trading world. In short, copy trade means benefiting from someone else’s work in a good way. Copy traders often get affected rapidly due to leverage.
Copy trading with the software automatically executes the strategy of other traders. It would help if you had the right software to implement trading strategies. It only takes a few minutes to set up the free software. It is available for Forex, cryptocurrencies, metals, commodities, or stocks.
Well, it is a universal concept. It works in almost every financial market, and most traders are copying the trade of experts in the industry who are familiar with the fundamental and technical aspects of the market.
Cryptocurrencies are relatively newer in the world of Finance, and copying the trades makes perfect sense for traders. But first, you need to figure out the professional traders of the crypto ecosystem and follow what they are doing.
Especially if you need to gain experience trading on your own, it is worth trying Copy Trade and understanding the market dynamics.
Steps of Copy Trading
If you are starting to copy trade for the first time, you must research some basic facts, know how a particular asset works, and many other things. However, many copy-trading platforms are a great way to make money in the financial markets.
- The first step in copy trading is to create a reliable account on a stock or crypto trading platform.
- Then, different standards help you to select the right trades.
- The following steps involve determining the amount you want to invest because risk is inevitable when you make any investment.
- You don’t have to invest all your money at once; instead, invest in small fractions. Always remember investing comes with risk, and you will only get your money once you lose.
- Next, you can check whether the strategy you followed from a trader is working. It would help if you analyzed the status of previous trades of traders you copied.
- It will also eliminate the mistake often a beginner trader makes when they start copy trade.
Features of Copy Trading-
Let us dive together and understand its vital features-
Copy Trading is Super easy where you need to use another trader’s expert knowledge. However, it also means that you have yet to lose control over the outcome; you can exit from the market anytime and place new trades.
There is no need to stay mindful while opting for Copy Trade because the expert’s skills are paramount, and there is always a higher potential of making money.
Yes, Copy Trading is reliable. It is following someone else’s strategy, which is better than you in trading. So, it is an opportunity to make the same profits they are making.
The inexperienced traders can take more benefits from it and can increase profit by just copying the trades of a reliable and experienced trader.
To make every transaction effective, you must trust the trader’s expertise and be confident about their strategies. Always remember that copying the trades is not the only aspect of copy trading; you should also consider some safety approaches.
Risk Management is the technique you should focus on to protect the capital. The main advantage of Copy Trading is to test different strategies for having profitable results. The copy traders are familiar with the risk management tools to prevent themselves and you from bearing losses.
Copy Trading completely removes the stress of making trade decisions. Instead, the traders only focus on implementing the trades and amending them without anxiety.
It is beneficial for beginners who find the market complex. Instead of worrying about day-to-day fluctuations, traders can check what experts are doing and determine if they want to use the same strategy.
Pros of copy trading
This trading is fantastic if you are unaware of the market.so here are the benefits of joining copy trade.
Diversification of portfolio
Copy trade allows you to diversify the portfolio in various ways. You can get access to your multiple portfolios and have broader exposure to the trading world.
It allows users to automate trading decisions by copying the strategy of other traders. The effort a trader needs to make is to find good profitable traders who achieve good trading results.
Traders often make wrong decisions due to emotions, which can significantly affect their trading experience. Also, they can sometimes lose a significant investment because of emotional foolishness.
You get rid of emotion and sentiments because you are following a trader who is more experienced and well-versed in the market.
Cons of Copy Trading
One of the main disadvantages of copy trade is a risk-controlling ability since your investment is based on the trading results of other traders. As a result, you sometimes get the right trading signals. Moreover, if a trader you follow makes a wrong trading decision, this will also implicate your trading account.
Limited Learning Potential
Learning potential is limited in copy trading rather than in regular trading. Therefore, knowing the market is better before you start copying the trade. In addition, it will help you eliminate mistakes while choosing a strategy from other traders.
Otherwise, you don’t learn anything new because you are already copying the strategy of the others. In addition, it can be challenging to determine why the trading strategy you are copying from other traders is winning or losing.
Copy trading is comparatively expensive compared to regular trading. Sometimes traders have to pay a hefty fee to a copy trading platform because they are using their services.
Some copy trade platforms also charge a commission for every profitable trade you make. So it is not a good decision for those who want to grow from small sums.
How does copy trade work?
Copy traders copy the work of other traders to make profits. If you are a copy trader, you need to decide the amount you want to choose for trading. Once you have done all this, you can execute the trading strategy of the trader of your choice.
When the trader makes a strategy, your trading account will also implement the same strategy automatically in real-time.
Is copy trading a good investment?
Yes, a copy-trading strategy can be profitable if you find a good trader who makes profits regularly. However, it’s still being determined which trader will make the best profits because the market is unpredictable.
Is copy trading suitable for beginners?
Yes, it is best for those who only are starting with crypto. Rather than learning about new skills, you can start by copying the traits of other traders.
How successful is copy trading?
Indeed, copy trading is a great way to make profits. However, its success only depends on the experience of the other traders’ predictions you are copying.
Which copy trader is best?
As per our research, eToro is the best copy trader; the platform provides the best trading opportunities with various advanced features. In addition, the range of tools it offers is comparatively higher than any other platform available online.
What is the minimum copy trading amount?
Trading amounts can vary depending on the platform tools and services they offer. However, with most basic platforms, the minimum required is $200 to start copy trade.
Copy trading doesn’t require any personal trading strategy. Therefore, it could be a good investment option for those without knowledge of trading and provide opportunities, including Forex and CFDs on Stocks, Commodities, Indices, and more.
Additionally, you learn about a new point of trading. We hope this guide about copy trading is helpful to you. However, don’t take this guide as a final decision; do your research before making any investment decision.