What You Need to Know about Copy Trading
Copy trading is one of the ways a Forex trader, novice or otherwise, can earn from the world's largest financial market on autopilot. Beginners can profit from a copy trading platform without the need to study the market. Intermediate and seasoned traders can take advantage of the ease with which a trade is made without the need for market monitoring, or choose to become signal providers and have their trades copied and grow their following.
In other words, both parties in copy trading will benefit one way or another.
But copying a trade is not as straightforward as it sounds. While it eliminates the hassle of market research and fundamental analysis, there is still some level of analysis that needs to be done.
In this post, we'll look into different aspects of copy trading that aspiring traders must know and investors can leverage.
What is copy trading?
Copy trading is a tactic that newer traders and investors employ to dabble in the Forex market armed with just minimal knowledge and experience. To some, it's a case of investing in people, signal and strategy providers, who have played the game and know the system better than they do.
To get started, you need to connect a portion of your portfolio to that of a specific trader and replicate their trades. You follow whatever position they close or open.
You can choose to follow more than one trader, spreading a percentage of your portfolio and the risks that come with Forex trading. Ideally, you should not risk more than a total of 20% of your portfolio on one strategy provider and no more than 1% per trade.
Now, you might be wondering, does copy trading work?
Yes, it does. But you'll need to be wise about the trades you replicate to ensure that you win more than you lose.
Why copy trade rather than manually trade?
Copy trading is best...
- If you're new to Forex and want to watch professional traders in action
- If you don't have the time to monitor the market all day or for the most part of the day
- If you only want to trade part-time rather than full-time
- If you prefer that someone else trades on your behalf and you just collect the winnings
To some traders, copying trades is their ticket to learning the Forex market in depth and understanding how the system works. As soon as they acquire the knowledge and skills and gain confidence, they then switch to manual trading.
Think of copy trading as a bike's training wheels. You use them until you learn to drive skilfully and are ready to take them off. Just that in this case, you earn while you learn.
Learn more about Forex Trading: Manual Trading vs Copy Trading
What does it mean to copy a trader?
You directly replicate all current and future operations of a trader until you decide that you no longer want to be their strategy follower. If a trader opens a trade, so would you. If a trader makes a profit, so would you.
Features, including trade and risk allocation, differ for each copy trading platform.
On the CopyPip platform, for example, trades are replicated proportionately. Say your account balance is USD10,000, and is five times more than the account balance of your strategy provider (USD2,000). If the strategy provider trades 1 lot and earns USD100, a proportional trade will be opened on your account. You’ll be trading five times the volume (5 lots) and earning five times the amount (USD500).
Unlike mirror trading, however, copying signals often allow you to adjust the risk and size of lots to trade. Depending on the platform you use, you can also set acceptable maximum loss.
How is copying trades beneficial?
- You can trade like a pro even with minimal knowledge of the Forex market
- You don't need to monitor trades all day or even study the market before you make a trade
- You will never have to miss a trade again if you copy a full-time trader
- You can minimise your risks and diversify your portfolio by following multiple strategy providers
Most importantly, watching the pros at work will help you understand the psychological mindset behind each position a seasoned trader opens. Why did they enter at that point? How did they get out? Why did the outcome turn out that way?
If you make an effort to study and learn the pros, you could become one yourself. Before you know it, you can be the strategy provider rather than the follower.
How to choose a copy trading platform
When it comes to choosing the best copy trading platform, there are three main factors you must consider--lightning-fast execution, detailed information on strategy providers, and helpful customer support.
You want a system that executes trades without slippage. You should get the currency you buy at the best possible price. Although you might not be buying it yourself, you want your signal provider to be able to do so for the best possible outcome. A difference of 1 pip is a lot, depending on your portfolio allocation.
It should also provide you with all the details you need to choose a trader to copy. From performance charts to maximum drawdown value, you must have access to these elements to help you make informed decisions.
Most importantly, the copy trading platform you choose must provide customer care at any level and regardless of the size of your account. If you can get in touch with support 24/7, so much the better.
How to choose a trader to copy
Now we go to the most important part--choosing a strategy provider to follow. Unlike following someone on social media, there are financial risks involved in copy trading. This means you don't copy signals from just any trader on the block.
One of the things you must evaluate is a trader's performance in a span of a year or so. Past performances may not guarantee similar results in the future but you'll have insights into a portfolio's performance over the long term.
Be on the lookout for consistent returns, where you're guaranteed 3% gains each month for the next 12 months, for example, instead of gains over a six-month period and losses over the next six.
You should also check if a strategy provider is trading and risking real money. This is how you'll gauge their confidence in their strategy and their ability to minimise risks.
Below is a detailed video of how to choose a trader to copy in Fullerton Market's CopyPip.
Let's get one thing clear: it's not easy to establish if all the traders you'll pick will bring you profits consistently. Even the best traders have their losing moments and you might come in at a bad time. But focus on choosing an experienced and talented trader.
How to recognise a good trade?
While copy trading is automatic, it still pays to know if the strategy provider you’re following is making a good trade. You'll recognise if it's made based on a sound trading approach, can be replicated, and is largely profitable.
What does this mean exactly?
First off, you want a trade that is done based on a trading plan or a strategy proven to work. The best traders have developed a plan over time and they follow it even through a losing streak. Because they know it works.
The more time you spend watching a pro in action, the easier you'll be able to see a pattern. If it's a good one, then the trades you copy will be good too.
Then, you want a trade that can be repeated based on reliable setups. For instance, a trade is made because of the upward trend of the market and a two-legged pullback to the moving average (MA). If the same price action occurs in the future, you can take another trade.
Of course, you want a trade that gives you profit as a whole. Not all good trades may be profitable, but if a large set of your trades are, then you're on the right track.
Keep a record of all your trades and review them to determine their profitability. Make sure you don't evaluate based on results but rather on why you made that trade and whether you can replicate it.
Where do you go from here?
Give copy trading a try
Explore Fullerton Markets' copy trading system, CopyPip, and check out how it works and what unique advantages you'll benefit from it.
The PROVIDERS page is where you'll see different profile descriptions of strategy providers that you can copy. Click on a specific profile, and you’ll also see how many followers a specific trader has.
Take the first step to build your own passive income when you sign up for an account.
Diversify your portfolio
As previously mentioned, spread your risks by following a number of good strategy/signal providers. If you can copy more profitable trades, the better you'll be able to grow your capital.
Reinvest your profit
While it might be tempting to withdraw your winnings, you will benefit more when you invest it into newer and bigger trades. Sure, there is a possibility that you'll lose a trade but the compounding effect of your profit will help you reap huge rewards. Just remember to set a stop loss to protect your capital.
Build your trading confidence
Copy trading provides you with the opportunity to closely watch other traders and gain confidence from doing so. This way, you can move from a demo account to trading real money.
Once you’ve gained more knowledge and skills, you can then move to manual trading. We'll provide you with the educational resources, including weekly trading tips that you can use to level up your Forex trading journey.
Ready to grow your wealth in the world's largest financial market? No better place to start than right here with us! Begin trading with Fullerton Markets today by opening an account:
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