Forex trading has become a global phenomenon in recent years as it gets more accessible and mainstream thanks to advanced trading methods. Learning to trade Forex, figuring out the intricacies, and making a profit is easier than ever, largely due to the wide availability of automation tools and, even better, the ability to follow experts’ strategies. Such popular practices include copy trading and social trading.
If you are hoping to take your first steps in Forex trading, following expert strategies can be a great beginning point. Even if you’re wondering ‘how to make money on the Forex market without putting in much time and effort, Copy trading and social trading could be the best option for you. Social Trading and Copy Trading are investing strategies where investors observe or copy expert traders’ actions to gain profits as they trade.
Copy trading Vs Social trading: An overview
Many novice Forex traders have difficulty finding reliable information on the Forex market, as well as being able to effectively and efficiently monitor their trades in a market that never sleeps. This is where copy trading and social trading become really handy. Although these methods have a lot in common, they are different from one another.
While copy trading is an easy way for novice and busy Forex traders to copy trades from seasoned professionals, social trading lets them observe and interact with expert investors as they apply their strategies. Collectively, both forms of trading can provide you with the means to profit from your trades without having to perform fundamental or technical analysis. We will explore the core differences between social trading and copy trading in this article.
What is Copy Trading?
Copy trading is a popular method that allows newbie traders to identify successful traders and replicate their strategies to make a profit. With copy trade, you can learn from successful investors and traders, improve your trading capabilities, reduce time spent on research, and move beyond your inexperience. Copy trade will also be convenient for traders without enough time to follow the market on their own.
Copy trading can also assist Forex traders in establishing investment Portfolio Diversification. This means that, instead of putting all of your capital into one position, currency pair, asset, or strategy, copy trading will allow you to use multiple trading strategies to benefit each market because you can choose from a variety of traders to copy.
Copy trading can be done independently on your own or by using a specialized copy trading platform. Despite the fact that a trading strategy allows you to trade past the expertise with practically no skills or financial background, you still have to decide which investor to follow, as it involves risks. Consequently, some market monitoring and analysis may be necessary.
There are a few criteria to consider when choosing a Forex professional you’re willing to copy trade:
- Check how long they’ve been into Forex trading.
- Review their investment track record.
- Look at their open positions.
- See how long they typically hold investments.
- Find out what type of investments they prefer.
Say you have chosen a Forex trader with a portfolio that consistently generates high returns. So, copying them should work for you. Read 6 reasons why Copy Trade is a perfect start for beginners to gain further insight.
Advantages of Copy Trading
Copy trading is perhaps the most commonly used strategy used in forex trading among traders of all ages. Various Forex brokers offer copy trading services, allowing even Gen Z and millennial traders to mimic the actions of seasoned professionals. The following are some benefits of copy trading.
1. An Easy Way to Start Forex Trading:
Since Forex copy trading is all about leveraging someone else’s trading expertise, you don’t have to analyze the market movements in-depth to make a trade. Imagine that you have picked someone who consistently generates high returns on their portfolio. You could theoretically accomplish the same thing by copying them. With no effort, you would be able to enter the market and gain profit.
2. No need to invest much time in research:
A large portion of copy trading is passive, which means you don’t have to spend much time thinking about whether to buy, sell, or hold currencies. You simply copy a pro-investor and generate returns in your portfolio without spending hours researching the market. With this, you can also diversify and manage your risks smartly without spending too much time researching.
3. Low capital requirements:
Forex trading is easy to start with just a modest amount of capital investment, as tight spreads are available (pips). AximTrade allows you to open a Forex account and copy trade for as low as $1, which is impossible to do in other markets such as stocks, futures, and options if you don’t have a large bankroll.
Disadvantages of Copy trading
Copy trading does have its own advantages when carried out. However, it may not be appropriate for every investor. Be sure to keep a few things in mind before you begin this strategy.
1. You share the same risks:
First, your success largely depends on which Forex trader you follow. There is no perfect trader when it comes to knowing when to buy and when to sell or where to invest. Copy trading is therefore subject to risk. You’re hoping to gain maximum returns from the strategy. Yet nothing can be guaranteed. This is why you should research your traders. Randomly picking a trader can backfire if their strategy is completely different from your own.
2. Copy trading can be expensive:
Copy trading can also be costly if you pay commissions for frequent traders. You may also have to pay management or administrative fees to a copy trading platform if it manages your portfolio for you. If you want to keep fees low, get to know the Forex trading costs with the broker before trading.
A copy trading strategy is one way to automate investment strategies. It makes it easier to choose where to invest your money. But it might not be the right fit for everyone. Having an understanding of the risks and rewards of copy trading can help you decide if it is the right strategy for you.
What is Social Trading?
Social Trading aims to provide Gen Z or any novice traders a means to learn and trade based on their interactions with experienced traders via social media.
“It’s a mentality of Gen Z and millennials, where we are naturally used to sharing everything” – Chris Josephs
Social trading isn't just about having fun anymore, but it is also making wealth management accessible to young traders by helping them follow those whose bets are doing well. This is becoming a big trading trend as the new army of retail traders begins to realize "it's very, very hard to invest on your own."
With the rise of social networks over the last decade, more online communities have developed where like-minded traders and investors can share up-to-the-second market insights. The access to shared knowledge and experience provides additional confidence to investors because they can get real-time insights from some of the world’s most successful traders at their fingertips.
Unlike copy trading, this method does not provide automated trading. You will only be able to observe the strategies and decisions of other traders. If you use this strategy, you can observe:
- Discuss investment strategies with experienced investors.
- Track the performance of other traders.
- Receive signals and updates of their trading activity.
- Get in touch with potential Forex IB‘s (Introducing brokers).
Simply put, social trading is more of an educational opportunity where novice traders can learn from more experienced traders instead of copying them. Users communicate in chat rooms, forums, and other social media platforms. However, this approach comes with huge risks since you don’t know the legitimacy of the data.
Advantages of Social Trading
Before you begin to earn and gain a profit through social trading, you should know how it works. When it comes to social trading, make sure you understand all the benefits and risks, since trading is not always straightforward without risks, and you should know certain things first. Let’s start with the advantages.
1. Provides a broader view of markets:
Understanding how the Forex market works and where opportunities lie can take an exhaustive amount of effort — it’s no surprise that many ordinary traders shy away from trading Forex due to its complicated nature. Social trading may provide a potential solution to this problem as it helps the novices gain insights from seasoned traders, so they can understand why currency pairs’ prices fluctuate – and learn potential indicators that can guide their decisions.
2. Access to tons of helpful data:
Through social trading, you connect with your preferred trading professionals, sharing strategies, studying market movements, data, and technical analysis, hoping to find an opportunity that works for you. If you’re new to Forex trading and want to learn from the experience of others by interacting with them, social trading is a good way to do it.
3. Having a mentor helps traders grow:
Beginners may find social trading extremely useful as a starting point since they can be guided by the ideas of more experienced traders. Spending time watching how a successful trader works and learning from their trading strategies allows you to gain greater insight into the current market situation and develop a strategy on your own based on ideas submitted by its vast user base.
Disadvantages of Social trading
As with everything in life, social trading has some downsides that must be taken into consideration.
1. Do not overtrust your mentor:
Some inexperienced Forex-newbies do overtrust their mentor and blindly make their trading decisions hoping for a successful outcome. No matter how experienced a trader is that they’re following, there is always the chance that mistakes can be made – and a sudden decline in the markets can make everyone look foolish. As you trade, it is advisable to conduct your own research and follow risk management strategies.
2. Your approach may differ from the mentor:
Your mentor may have a great approach, but just because it worked for them doesn’t mean it will work for you. A trading approach that works best for your mentor doesn’t guarantee it will be the same for you. You have to be clear about your approach. Unless you know everything, you can’t blame others if you lose money by following their method; they won’t refund your money, so you should be knowledgeable about everything.
If you are considering Social Trading, don’t look at it as a fast and 100% secure method of earning income. The best way to learn and minimize your risk is to try out other people’s strategies on either a demo account or a Cent account. Never enter a market unless you know what is happening and what you are doing.
Copy Trading Vs Social Trading: Which to choose?
The decision to choose between copy trading or social trading is completely up to you and your trading preferences.
With social trading, you will be able to make trades based on information from other traders and you’ll be the one who decides whether or not to trade. Your portfolio and trading are much more controlled. This, however, comes at a price. Due to your inexperience, if you misread something, you may end up making the wrong move. Risks can be a bit higher with this, and you may lose a great deal in the beginning.
Copy trading, however, doesn’t require you to do anything except click the ‘copy trade’ button. You will then see all the trader’s actions (including currently open trades) in your account. You do not have to do anything other than that – the system is automated and will handle everything for you. On the downside, if you pick a trader that has a bad streak, your portfolio is at risk.
Copy trading is best for:
- Newbie traders who are interested in learning the fundamentals of Forex trading by copying other traders and earning money at the same time.
- Traders and investors who have little to no time to trade are more appropriate for automated trading.
- Professional and expert traders who earn commissions, rebates, or performance fees by allowing others to copy them. Payment structures vary by broker.
- Traders prone to emotional trading, leading to poor trading decisions. Copy trading allows them to leave the management of their portfolios to a professional trader.
Social trading is best for:
- Newbie traders who are interested in learning the basics of trading without risking their money. It gives them the knowledge and confidence to follow other traders and learn from their insights.
- Traders who trade as a hobby mainly for the purpose of engaging with other investors and traders. Profits are secondary. These traders will be satisfied with just a small profit.
- Traders seek to identify market trends and sentiment rather than focusing on technical analysis.
- Professional and expert traders looking to build a following as a means of boosting their authority, credibility, and expertise, then using that following to earn money.
Identifying the type of Forex trader you are, along with your preferences, your goal, and how much time you are willing to invest will help you choose between the two options.
Copy Trading has the upper hand!
In light of the benefits of using computer-based algorithms, and the amount of time that is needed to trade forex manually, copy trading is a more sensible option.
Trading forex efficiently, and making a profitable ROI, take such a great amount of time, that most traders simply cannot afford it. This is why copy trading is, in our opinion, the best option. With it, you can skip the time and effort involved in studying charts, analyzing your next move, monitoring economic news, and can make a profit by manually copying other traders.
How to Successfully Copy Trade with AximTrade
Start your copy trading journey with AximTrade and start making a profit while benefiting from the experience of forex experts and successful traders. AximTrade offers traders the freedom to choose between multiple account types based on their trading strategy, experience, and capital designed for investment.
Simply follow the instructions to get started with Copy Trade.
- The first step is to open trading account. If you do not already have one, you can choose from a Standard account, CENT account, ECN account, Infinite Leverage account, and a Demo account.
- Choose any of the available payment methods to fund your account.
- View AximTrade’s list of the top traders, as well as their performance history.
- Select Money Managers, whose trades you would like to copy according to their strategy and profit rate. Copying different strategies will help you determine which one is most effective.
- Monitor and profit from your trades with complete control.
AximTrade stands out as the best broker for its transparency, reliability, excellent trading conditions, 100+ trading instruments, 0.004s execution speed, and lifetime bonus account. Check AximTrade trading assets and flexible leverage and learn how to open your trading account in simple steps and start the investing journey.