Copy trading is a popular trading strategy and a form of portfolio management that inexperienced forex traders use to make trading decisions without researching on their own. It is the process of emulating an expert’s trading activity. Copying trades is becoming increasingly popular as it allows traders with minimum experience to make money. Choosing the best copytrade platform is a fundamental factor in establishing your investment objectives and managing the risks.
What is Copy Trading?
Copy trade is a method of copying a professional trader’s position by another trader’s account. This can be performed either automatically or manually. This trading technique aims to follow other investors who have a track record you would like to emulate. This allows the trader to monitor and learn from the strategies of successful traders. But like any trading approach a trader decides to employ, it’s advised to check the trading record before deciding to risk real capital. Remember that even by following the strategies of an experienced trader, your capital can still be at risk.
Copy-trading best suits traders who don’t have time to keep up with the market or still lack the experience to trade on their own. It is preferably used in short-term trading, day trading , and swing trading for example. This approach is usually applied to forex, cryptocurrencies, stocks, and other volatile markets.
One important aspect to keep in mind; past results do not guarantee future returns.
How Does Copy Trading Work in Forex Markets?
Forex copy trading is a popular strategy among traders. A forex trader simply copies another trader’s positions rather than researching and analyzing independently. It is a way to automate your trading strategy. Knowing the risks and rewards will essentially help you decide whether it is a strategy you should adopt.
It is important to choose an expert trader to follow, then copy the trading positions. The key aspect is choosing an experienced trader whose strategies and plans align mostly with yours. You can copy trades on your own or use a copy trading platform that allows you to select a specific trading activity to mimic.
This strategy uses social networks and social trading systems to copy trades from professional and experienced traders. When one trader opens a position, it’s up to traders to decide whether they want to open the same position or not. By using automated trading systems, the trades will be copied without additional input from the trader.
There are multiple ways to copy trade with another investor. One of them is copying the trade entirely including entry, stop loss and profit levels. Another one is to copy the trade while modifying it according to personal preferences and risk ratio, for instance. Both can be done directly through the trading account on any trading platform.
Copy trading offers a good opportunity for traders to diversify their portfolios. This is through trading multiple positions on different tools in the markets.
One way to further diversify your portfolio is by copying various traders using different financial instruments. It also helps traders to explore different trading strategies. If you use copy trading, you may consider copying multiple investors.
The Elements of CopyTrading
- Money Manager – The Provider: the trader whose trading activity is being copied. Usually referred to as the signal provider.
- Follower – The Copier: the trader who is following and copying the trades of another investor. Often referred to as the subscriber.
Platforms and Technology
Copy Trading can be executed on different trading platforms offered by premier forex brokers. There are popular solutions available in the market with custom-built platforms which are commonly used by forex traders. Initially, the platforms using MetaTrader 4 remain the most popular ones. There are several advantages to the platforms using MT4 for copy trading. As most traders still prefer the MT4, this enables the money managers and followers to fully utilize the MT4 features. Eventually, the top forex brokers provide access to their clients to join the copying solution as well as allow them to create their profiles and become money managers. In AximTrade, the copy trade is free for all clients who open a forex account.
How to find the best trader to follow on copytrade?
Copytrade requires exploring the traders you would like to copy. This is a crucial step for anyone wanting to start copying. Usually, copytrade platforms allow you to check the listing of top performers and apply several filters such as popularity, high profitability, minimum risk, and experience. Each money manager profile includes essential metrics to assess the performance including the number of followers, growth, daily gain, minimum investment, and more. These performance value and charts are what allows traders to decide who is the right money manager for their investments. However, this process requires proper evaluation in order to know how to choose the money manager in copytrade. Here are a few important tips to follow when choosing the best trader for you:
1. Select the right time to copy a money manager
The first rule in copy trading is to not select only based on the gains of the money manager but you have to monitor the performance over time. Another important tip is to avoid copying the money managers after they have achieved their earning peak. In some cases, this could indicate the open positions have already reached their full potential. Eventually, the better option is to start copying money managers when they open new positions.
2. Evaluate the Risk Level based on your investment profile
As we all know that risk management is a key point when it comes to all types of investments. Therefore it is highly important to know how to evaluate the risk level of the money manager before copying their trades. Based on the scale of the risk you can determine whether the money manager is using a risky strategy or not. With that in mind, you have to decide what is suitable for your investment. The balance and risk/reward ratio is among the most important factors to evaluate. Always search for the right balance that is matching your investment capital and avoid following only based on popularity or growth. Commonly, some forex beginners tend to misread the performance and get tempted by growth charts without studying if this strategy of the money manager is suitable for them or not.
3. Look for the right indications
There are some money managers who seem to have perfect records with almost no losses on previous trading positions. You should be doubtful about some of those money managers since it is not realistic that all positions are profitable all the time. The most successful forex traders can always receive losses. Therefore, it is better to look at stability as the first key. If you want to know how to choose money managers in copy trade, follow those with a consistent strategy and they don’t have big earnings or great losses. The extremes are not a good indication.
4. Track your positions
Copy trading doesn’t mean you will not attend your trades. Even with following the most successful money manager, it is important to track your open positions. Opening too many positions in a short period of time can be risky and might lead to great losses. Manage the copying with the same attention level you follow during trading. Make sure to keep tracking your account equity and balance during the process and sustain a proper understanding of the current positions.
Copy Trading Strategies
It’s considerable to evaluate how the provider’s strategy you wish to copy aligns with your own trading strategy. Here are some tips for evaluating the strategy:
- Flexibility: Fully-automated copy trading systems will leave you with minimal control over the executed trades. If you want to take control then you should go for a more flexible style.
- Lower your leverage – Leveraged copy trading allows you to increase your position sizes with small capital. But it doesn’t only maximize your profit potential, but your loss potential as well. Make sure to use a proper leverage level that aligns with your trading goals and strategy.
- Risk: This differs from one trader to another. Make sure you’re risking only what you can afford. That’s why consider adjusting the risk level when the provider’s rate is higher than you can risk
- Understand what you’re trading: Whether you decide to invest in Forex, stocks, indices, commodities, or cryptocurrencies, it’s crucial to understand the market you wish to invest your money.
- Do your research: Copying other traders doesn’t mean you shouldn’t do some research on your own. This helps you identify better trading opportunities and the option to follow to discard trades based on your own perspective.
The Top Benefits of Copy Trading
Several studies have been conducted to measure the success rate of people who use copy trading. Results showed that people who carefully choose their traders based on statistics and portfolios are up to 10% more successful than people who trade manually or choose their traders based on personal preferences.
There are several benefits of copy trade that can allow traders to explore a variety of investment goals with lower risks. Investors are usually keen to discover opportunities while they have limited access to advanced technical analysis or they might be at the beginning of their trading career. Therefore, copy trading can expand the opportunities and secure the risks to the minimum level. These benefits include different types of traders and trading strategies.
- Suitable for Forex beginners: The starting phase of forex trading is usually full of challenges and learning the basics of forex trading and technical analysis can take a long time. Therefore, the copy trade as a starting point is highly effective to enter the market and monitoring the professionals as they open their positions and apply strategies. Top copy another professional money manager can help in gaining experience and decrease the risk.
- Easy to use without market analysis skills: When it comes to following a professional trader or money manager, only research skills are required in this case. The investors are not required to demonstrate technical or fundamental analysis to enter the market since the money manager is the one who is in control of the trading strategy and setting the take profit levels. Ideally, analysis skills are required in order to have a better understanding of your investment value and risks, however, it is not required to master the analysis or to be an expert to copy other professionals.
- Generating income for beginners: While there forex trading is not for everyone as it requires experience to be able to secure a stable income, copy trade is a great source for getting an income with minimum risks. However, it is important to understand that the forex market is volatile and profit is not always guaranteed. The most important factor is to set realistic investment goals and allow a margin for losses. Once you choose a money manager, you need to remember that there are several factors to choose from such as performance, minimum risks, and profitability. Choose the money manager you believe has a good stable history in order to secure a stable income.
- Flexibility and minimum commitments: Copy Trading allows high flexibility and fewer commitments since the trades are all carried by the money managers and the platform will manage the copying. If you are busy with a full-time job or you have several investment activities, it is ideal to choose a professional money manager to manage the trades. The forex market can be time-consuming and require a full commitment to monitor the market and the financial news. Therefore, the benefit of copytrade is that it is automated with minimum commitments.
What Are The Pros and Cons of Copy Trade?
- Good for beginners: It’s good for new traders to learn trading techniques and strategies, and also great for those who don’t have the time to commit to full-time day trading.
- Available on demo accounts: Some brokers offer demo copy accounts. Demo accounts are free of charge, risk-free, and often provide access to useful research tools.
- Exploring new techniques: copy trading gets traders exposed to new trading techniques, ideas, and strategies they may never hear of anywhere.
- Risky: the risks can be high even if you choose an experienced trader to copy. Make sure to examine the trader you wish to copy very carefully.
- Fees: Some brokers apply to commission and some money managers have high-performance fees which are not suitable for traders with small investments.
Copy Trading Vs Social Trading
Social trading focuses more on exploring various ideas and insights from a variety of websites and services to develop new strategies. It is based on the idea of sharing trading tips and experiences among traders. While copy trading is the process of imitating trades while profiting from the results only. Beginners usually go for social trading to help them understand how the market works, before committing to copy trading. There might be several differences between social trading and copy trading but some platforms will have minor differences between the two and implement most of the features in one solution.
How to start Copy Trading?
Now you can easily copy trade with AximTrade through the following simple steps:
- Open a forex account to start trading now or practice risk-free with virtual funds on our demo account.
- Download the MT4 trading platform, and sign in using your trading account.
- Sign in to your Member Area, and select the Copy Trade option.
- After checking the profiles, trading history, risk level, and profit rates, select a trader you like to follow based on your preferred strategy and goals.
- Check the profile of the Money Manager to better identify the followed strategy based on the trading history and performance analysis.
- Once you feel confident and convinced in the strategy followed by the Money Manager, you can start copying trades by clicking on “Connect”. But first, you’ll have to select the investment fund you want to deposit/transfer to your follower account, then check the “Copy Open Trades” box to copy the existing traders of the Money Manager.
- Monitor the performance of your follower accounts in the “My Accounts” tab.
- Analyze your follower account by checking investments, profits, balance, equity, fees, and performance chart.
Start exploring the top money managers to follow at the AximTrade platform. With a few easy steps, you can set up an account with AximTrade and explore unlimited opportunities for investment in the financial market. As an award-winning forex broker with 4 global forex awards in 2021, AximTrade provides highly advanced technology for copy trading with top competitive leverage in the market up to infinite leverage. In order to learn more about forex account types and trading conditions,