Copy Trading: How it Works and Top Benefits

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 Copy Trading 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 Definition:
Copy trading is a feature or a platform that’s run and operated by acknowledged forex brokers. It allows the trader or investor to automatically copy and implement the traders of the professional trader -aka money manager- they follow.

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?

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.

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.

Key Forex Copy Trading Terms

1. Money Manager – The Provider: the trader whose trading activity is being copied. Usually referred to as the signal provider.
2. Follower – The Copier: the trader who is following and copying the trades of another investor. Often referred to as the subscriber.
3. Broker: Brokers provide access to copy trading platforms (such as apps or MetaTrader 4), allowing providers and copiers to connect.
4. Copy Ratio: The percentage of trades that followers copy from traders or signal providers. If a copy ratio is 100%, all trades are copied, while if it is 50%, only half of the trades are copied.
5. Slippage: The price difference between the expected and actual execution price of a trade. In copy trading, slippage can occur when a delay occurs between the executed trade of the copied trader and that of its follower.
6. Drawdown: A percentage measurement of a trading period’s peak-to-trough decline. The loss represents the trader’s or signal provider’s greatest loss from their highest account balance.
7. Performance Metrics: Various measures used to evaluate the performance of a trader or signal provider, including ROI, win rate, drawdown, and average trade duration.

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 trading is free for all clients who open a forex account.

How to find the best trader to follow on copy trading platforms?

Copytrade requires exploring the traders you would like to copy. This is a crucial step for anyone wanting to start copying. Usually, copy trading 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

While copy trading involves relying on other traders for decision-making, it also allows for strategic choices in selecting traders, allocating capital, setting stops, deciding when to stop copying, and more. So, it’s advisable to enter copy trading armed with effective strategies to handle different situations.

Experts recommend taking the following into consideration when developing a strategy.

• An assessment of the risk-reward ratio.
• Diversification of risks.
• Results analysis.

Here are three copy trading strategies recommended for traders:

1. High-risk strategy: 

This approach involves selecting traders for your portfolio based on their return indicator. For instance, using a filter on AximTrade, you can discover profiles of traders who have demonstrated a return rate of over 100% in the past 12 months. Keep in mind that higher return potential comes with higher risks. It is crucial to focus solely on this criterion and avoid allocating more than what you are willing to risk for this type of copy-trading strategy.

2. Conservative strategy: 

This strategy revolves around finding traders who prioritize minimum risk criteria, meaning they have avoided significant drawdowns in the past 1-2 years and prefer fewer trades. On AximTrade, you can customize the risk criteria to your preferences.

3. Mixed strategy: 

This strategy employs the portfolio principle, allowing investors to allocate a larger portion of their capital to copy traders with conservative strategies and a smaller portion to copy traders with risky strategies.

Here are some additional tips to evaluate a copy trade 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.

Opening a demo account will allow you to become familiar with the various possibilities of copy trading!

The Top Benefits of Copy Trading

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.

1. 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.
   
2. 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.
   
3. 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.
   
4. 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.

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.

What are the Pros and Cons of Copy Trade?

When it comes to copy trading in Forex, one should carefully weigh both the pros and cons before making a decision.

Pros:

• Easy to use: Copy trading is an easy strategy to use since all you need is an account and access to master traders.
• Diversification: Copy trading is a good way to diversify your returns. It allows you to make money for a longer period.
• Passive investment: The automated process of copy trading liberates investors’ time, as orders are placed by special software. This makes it a passive investment option.
• Learn from experts: Copy trading allows you to copy some very experienced and even professional traders. As such, it can be a good way to learn from experts and see already-developed strategies in action.

Cons:

• Lack of control: Those engaged in copy trading have no control over the trading strategies and decisions of signal providers they are copying. Though certain parameters can be put in place around how the trades are copied, investors still need to pay close attention to the trades, strategy, and current market environment.
• Risk: Copy trading involves risk, just like any other form of trading. Sometimes, your trade cannot be executed at the same price point as the trade you are copying or at all. That can happen because of the delay between the original transaction and the copying transaction, and market conditions can change before your trade can be executed.
• Dependence on others: Copy trading depends on the performance of the trader you are copying. If they make poor trading decisions, you will also suffer losses.
• Fees: Successful Traders generally charge fees for successful transactions. If you copy a trader, you will have to pay a fee, which will lower your profits. Make sure these things are checked beforehand.

Read about the forex trading costs associated with forex brokers as well.

Copy Trading Vs Social 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.

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.

Social Trading:

• 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.

Copy Trading Vs Mirror Trading

Copy trading and mirror trading are two similar but distinct concepts in the world of trading. Here are some differences between the two:

Copy Trading:

• Copy trading is an enhanced version of mirror trading, where you have more control and flexibility. In contrast to mirror trading, which necessitates blindly following all signals without any human intervention, copy trading enables you to select a specific trader whose trades you wish to replicate. When this chosen trader initiates a trade, your trading account will mimic the same action.
• Copy trading remains fully automated, but you have the ability to switch between different traders at different times. Additionally, depending on the platform’s capabilities, you can choose to follow multiple traders for different currency pairs.
• By following the most skilled traders, you not only benefit from replicating their trades but also gain insights into their trading strategies. You can monitor all of their active positions in real time and attempt to comprehend the rationale behind each trading decision.

Mirror Trading:

• Mirror trading, as the name implies, involves replicating the trading approach of other traders. The reference to “other traders” is made because mirror trading services merge the strategies employed by their top traders to generate dependable and precise signals for their clients.
• In the present day, mirror trading has become significantly more advanced. Despite being an established strategy, it has undergone enhancements through the utilization of big data and artificial intelligence. Consequently, mirror trading signals exhibit a considerable degree of accuracy and predictability, making them ideal for investors seeking a hands-off approach to forex trading.
• The only drawback associated with mirror trading is the requirement to replicate everything. Selectively choosing which signals to follow is not possible; in fact, the entire process is fully automated. Traders must also install proprietary software or a MetaTrader plugin to enable automated mirror trading.

How to start Copy Trading?

Now you can easily copy trade with AximTrade through the following simple steps: 

1. Open a forex account to start trading now or practice risk-free with virtual funds on our demo account.
2. Download the MT4 trading platform, and sign in using your trading account.
3. Sign in to your Member Area, and select the Copy Trade option.

4. 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.

5. Check the profile of the Money Manager to better identify the followed strategy based on the trading history and performance analysis.

6. 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.

7. Monitor the performance of your follower accounts in the “My Accounts” tab.

8. Analyze your follower account by checking investments, profits, balance, equity, fees, and performance chart.

• (a) INVESTMENTS: Sum of deposit and withdrawal operations into the Follower account.
• (b) PROFIT: The trading result of the Follower account is based on the closed trades. Value updates in real-time.
• (c) BALANCE: Amount of money on the Follower account based on the deposit/ withdrawal operations and closed trades.
• (d) EQUITY: Balance on the Follower account + the result of open trades on the Follower account.
• (e) FLOATING: Result of Open Trades on the Follower account.
• (f) PERFORMANCE FEE: Payment which Follower pays to the Money Manager for the profits he creates on the account.
• (g) PAID PF: Total amount of Performance fee which the Follower paid to the Money Manager for the profit from closed trades since the start of Investment.
• (h) OUTSTANDING FEE: This shows the Performance Fee for the latest profits Money Manager made on the Follower account. This PF will be charged in the closest PF rollover if the Money Manager doesn’t lose that profit.
• (i) PERFORMANCE CHART: This is the chart that allows the user to evaluate the follower performance that was generated by Money Manager trading decisions. It is a really useful tool for the client to know how his investment is doing on a historical basis.

Get Access to Copy Trading in the Mobile App!

Get exclusive access to the world of copy trading with the revolutionary AximTrade Mobile App. 

AximTrade Trading App simplifies and facilitates account management and trading, allowing users to manage their accounts with just one click and ensuring seamless and effective trading. The mobile app lets you mirror the trades of seasoned professionals with just a few taps, thus benefiting from their expertise and strategies. 

Forex Copy Trading: FAQ

Conclusion

Copy Trading is an efficient way to grow your funds without actually trading! Think of it as a way to get the most out of the forex market without needing to be there around the clock. While Copy Trading is an investment method at its heart, it also helps traders learn from the money managers, who are professional traders who are already very successful and have breath-taking growth rates. So, whether you’re going to invest or trade, copy trading is something you really need to try. The risks still exist, however, so be cautious when setting your budget and choosing the right money manager.