Known also as auto trading, copycat, or social trading, copy trading is a technique more and more investors resort to. This is a strategy, which is exceptionally common among traders who are new to investing in stocks or Forex trading because, in practice, they make use of the prowess of more experienced investors.
The question most traders ask themselves, however, is whether it is a viable investment strategy and whether copy trading is worth investing time and money. Experts meet this strategy with mixed feelings, and for their most part, they doubt the favorable results from its usage. With this in mind, there are a number of techniques traders can take advantage of in order to refine their copy trading strategy.
What is Copy Trading and How to Use It
Copy trading is an option that investors should be aware of, especially if they are about to start trading online more actively.
While learning the ins and outs of copy trading, investors need to know that this option allows them to buy and sell assets passively, which is exactly what makes it appropriate for first-timers. So, less experienced investors can make use of the expertise of other traders because while using this strategy, they will mimic the trades executed by another investor. Normally, the implementation of the same trades in your account takes place almost straight away.
What investors should know is that quite often, copy trading and mirror trading are used like two interchangeable terms. Yet, traders should take into account that there are certain differences between these two strategies. Mirror trading was one of the first such strategies, and it inspired the creation of multiple other similar techniques that are based on roughly the same principles. While using this strategy, trades that are executed by other investors will be automatically copied into your account through the means of signal services or auto-trading tools.
As for copy trading, investors can find and repeat the trades of other investors by copying them. In this way, you will be able to copy the portfolio of more experienced traders like-for-like, which is exactly why it is so hugely popular among total novices.
Unlike mirror trading, which is preferred by traders that tend to invest larger sums, copy trading works best for small-scale investors because of its straightforwardness and flexibility. Investors are given the chance to decide if they want to go for larger volumes or not, as this technique allows them to mimic the entire portfolio of the trader or select just several trades.
This also makes it possible to follow more than one trader at the same time, and to do so, you just need to decide on the percentage of your balance to use. One of the benefits of the usage of copy trading is that while investing, you will be given significantly better control over the risk, for the simple reason that there is a limit on the portion of your balance you can use to copy each trader.
Copy trading is a well-preferred option also because this strategy allows investors to stay ahead with their account activity, which cannot always be achieved with mirror trading, for example.
One more reason why copy trading is a viable strategy is that you will be able to pick investors to copy after you have closely examined their portfolios, trades, and most importantly, their success rates.
Who Can Use Copy Trading
The ease and effectiveness of this technique are what make so many traders turn their eyes to it. Besides, it is used by such a large number of traders because it is designed to suit a number of financial goals.
First off, newbies to Forex trading might be comfortable with using this strategy if they are yet to learn the nuts and bolts of fundamental analysis, which is one of the musts for becoming a successful investor. Using this technique is one of the best options you have if you are still struggling with chart drawing tools or technical indicators. While using copy trading in Forex markets, you will be saved the hassle to make researches on your own, which is a major plus.
Needless to say, successful Forex trading requires lots of time and dedication. If you do not have that much free time on your hands, then copy trading might be best suited for you because you do not need to take your time to follow the shifts in the prizes of the assets.
Finally, copy trading might work best for investors that want to guarantee themselves a passive income. All you need to do in order to use this strategy is pick investors that will buy, trade, and sell instead of you.
Although this strategy can help you improve your trading results, it does not go without its lacking points. First and foremost, using copy trading or any other such strategy does not guarantee investors continued success. Oftentimes, traders tend to lose patience and give up on the strategy, which might result in the loss of large amounts. Not to mention that sometimes, when you go for copy trading, the stock has already moved, meaning that you have lost the opportunity.