Pros And Cons Of Copy Trading
Copy trading is a kind of trading where a trader copies the trading positions of another trader. Copy trading can be done manually or automatically, so a trader can decide which approach to consider. This technique has become relatively popular among traders. Copy trading is certainly a beneficial technique for novice traders, but many experienced traders also take interest in it to diversify their trading portfolio.
What is copy trading?
The main idea behind copy trading involves an experienced trader who executes his trades, which then is replicated by other traders. As the experienced trader will open a position, it will automatically get opened on the copier’s trading platform. The initial aim of copy trading was to develop new ways of helping inexperienced and new traders but there are many experienced traders who are also using this platform.
Who are the participants of copy trading?
There are three main participants in the copy trading environment.
First, the broker, who provides copy trading. Not all brokers offer this service. This means you’ll have to find the brokers who offer this service. Prefer using regulated and reliable forex brokers like AAAFX, Fxview, IG, and FXTM. AAAFX and Fxview support the copy trading platform “ZuluTrade” whereas FXTM has a platform known as FTM Invest and eToro offers its own copy trading platform.
Brokers help copy traders to connect to the platform and provide various tools that let them track the traders of the master trader. Most importantly, brokers vet traders who are capable of becoming master traders.
Second, the master trader. He is an experienced trader who has been in the market for a good amount of time. They place and execute their trades from their platform which are then mirrored to other traders. Master traders generate profits from the winning trades and from the small commissions.
Third, the copier or investor. These are the traders who have subscribed to the copy trading platform and the master trader. Their main aim is to make profits by simply following the master trader.
It is important for a trader to conduct his due diligence and understand both the benefits and the cons of copy trading.
Pros of copy trading:
1. Copy trading helps diversify the trading portfolio in the market that you want exposure to but are unfamiliar with it.
2. Copy trading can be the best way of making profits for novice traders who do not know how to trade the market manually.
3. Traders can opt for another master trader if the financial goals of the trader don’t match with the outcome of the present master trader.
4. Traders can customize their trades. Copy trading platforms like Zulutrade, eToro, and DupliTrade allow traders to customize their trades.
5. Copy trading allows traders to learn from experienced traders by observing their trades.
Cons of copy trading:
1. Traders do have control over their trades.
2. The outcome of copy trading is not guaranteed.
3. Copy trading involves the risk of loss if the master trader loses.
The success of copy trading depends on the success of the master trader and the timing of the market. Copy trading can be a perfect way for learning from experts while making profits. But, before you start copy trading it is important that you do your own research regarding the trader you’re copying trades from, his past performances, the number of successful and unsuccessful trades, and other aspects to have a better chance of attaining success.
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