Copy trading is the process of copying the financial positions of a selected individual in the financial market.
The selected individual is responsible for opening and managing the financial positions. In copytrading, some of the copying trader’s funds are linked to the copied trader’s account. This means that any copied trader’s trade action will automatically reflect in the copying trader’s account in the proportion of the copying trader’s funds linked to the copied trader’s account. Some of the trading actions that are executed on both ends include stop loss, take profit order, opening, and closing positions. You can copytrade a wide range of financial market commodities such as Forex, Cryptocurrency, Stocks, ETFs, and CDs (commodities).
Where Can You Copytrade
Copytrading is mostly possible on online brokerage platforms that provide both third-party and proprietor copytrading platforms. While some online trading platforms have copytrading features, it is essential to familiarise yourself with their terms and conditions in order to avoid hidden charges or any other form of inconveniences that may affect your trading. eToro is an example of an online trading platform that has the copytrading feature.
How Does CopyTrading Work?
Copytrading allows you to replicate another trader’s financial market positions by linking your portfolio with the trader’s account. The copied traders are mostly more knowledgeable about the market you’re investing. Copytrading is facilitated by online trading platforms like eToro using the internet, signals, and automated tools. In other words, traders communicate their trading positions with the use of signals via a trading platform where their followers can then copy their trading positions. As a copytrader, you can choose to disconnect copied trades and switch back to managing it yourself whenever you want. Copytrading is not without its risks, so you should ensure that you choose a trader that has a good trading record when it comes to trading your preferred commodity. The success rate of your preferred trader should determine how much you want to invest.
Things To Consider Before Starting Copytrading
Copytrading is mostly used by people who do not have time to monitor their trading positions on a regular basis. You can copy the trading positions of a successful trader, and it’ll be as if you’re the one trading. However, there are things you have to consider before deciding to copy trade.
Platform
There are a few things to look out for when trying to pick a copy trading platform. It is not an easy task because most of these platforms probably have different information and reviews. But the stand-out things you should consider are security, regulations, transparency, and the number of quality traders on the platform. An example of a top trading platform is eToro which offers a demo account, $200 minimum deposit to copytrade crypto, CDs, Stocks, and ETFs. It is regulated by institutions such as CIF, FCA, MiFID, and ASIC.
Trader
Choosing who to copy can be quite a daunting task because you never can tell who is at the back end of an account. The profile section of the trader’s account is a good place to start. You’ll get relevant data that will guide your decision. You should also check out things like the track record of the trader. His equity growth, level of risk and performance chart, and returns rate will say a lot about how good the trader is. The number of followers is also an indicator of how good a trader is.
Summery
Copytrading can definitely work for many traders that are using social trading platforms like eToro, it can be an easy form of trading and investing if you do your due diligence on the platform and trader choice.