What You Need to Know about Copy Trading

23rd January 2022

Do you enjoy trading but sometimes want more direction and guidance with the decision-making process? If so, you are not alone. In fact, millions of active traders and investors have chosen to use copy trading as a way to follow the activity of expert level traders. It only makes sense for newcomers to keep a close eye on what seasoned practitioners do and how they operate.

What is copy trading, and how can it work for you? Further, what are the pros and cons of this new type of buying and selling where you follow along and literally copy the actions of experienced investors? Finally, how can you avoid the pitfalls that some new copying enthusiasts make in order to learn and earn? Here are the pertinent facts about how to get set up with an account that will let you precisely follow the actions of experienced traders, avoid mistakes, learn the basics, and figure out if copy trading is suitable for your investing style and risk tolerance level.

What Copy Trading Is

Copying the trades of others is what copy trading is all about. Most of the reputable brokerages that allow account holders to do it can get you set up in a matter of minutes. The mechanics of the process are actually quite simple. First, you inform your broker that you want to follow one of the designated lead traders or choose someone else to pattern your trades after. There’s no need to turn over your entire account balance to the system. That decision is up to you.

Most people choose to only place a portion of their total balance in the hands of the automated system that exactly mimics the actions of the designated lead investor/trader. After that, the entire process is fully automated. You can visually follow the action anytime you wish and check it to see the results in real-time or every so often. If you decide that you don’t want to continue, simply inform your broker, and you’ll be put back on standard, individual buying and selling on your own.

Pros and Cons

Every strategy comes with advantages and disadvantages, and this one is no exception. One of the best things about copying the trades of others is that you can decide anytime to unhook from the arrangement and go back to making your own decisions. But, in general, the ups and downs of the approach can be boiled down into a few cogent points. For instance, if you want to learn more about copy trading by reading and doing research, you’ll soon discover that the main reason so many people opt for it is simplicity. This is especially true for newcomers who are eager to put their money to work immediately but also wish to learn by watching what the experts do.

Other pros of the method include the chance to earn profits from a given market, like forex or stocks, even when you don’t have much experience. Another essential advantage is time. When you’re on an automated copying arrangement, you don’t need to do hours of research about what to invest in or place all the orders yourself. Automation is the primary reason you’ll save a significant amount of time by mimicking the decisions of experts. Keep in mind that automated copying software uses sophisticated risk management tools to minimize losses over both the short-term and long-term time horizons. That means you can not only control losses but pay close attention to the real-time results of every transaction.

On the downside, copying isn’t a perfect solution for all kinds of trading enthusiasts. This concept applies mainly to those who prefer a hands-on style of doing things. Keep in mind that some of the experts charge fees to those who follow their buying and selling activity. Always check with your broker to find out about fees in advance. That way, you can sidestep this particular disadvantage.

Avoid the Pitfalls and Do it Right

If you want to know how to copy trade, simply sign up for a copying account with your broker and choose someone to follow. Your ordering activity, with whatever amount of money you choose, will be automatically used to exactly reproduce every transaction made by the lead trader you’ve chosen. Most platforms have a tab you can click to indicate you wish to follow a leading trader. That’s step one. Next, decide the amount you want to deposit into the copying account. You can place as little or as much as you wish, but some brokers have minimums. Follow along with the activity and see how well you do. Finally, you’ll be charged a percentage on successful transactions, which means a specified amount of your profits will go to the person you’re following.