Trade Copies How Does It Work? See Everything You Need to Know
Content
- 1 What is copy trading? Definition
- 2 Advantages and disadvantages of copy trading
- 3 How does copy trading work? A real life example
- 4 The flexibility of the settings allows Maria to do the following at any time:
- 5 Can I make money from selling copies?
- 6 Is copy trading safe?
- 7 Additional information about copy trading:
Learn what social commerce is and how it works from the examples. Discover a definition of trade copies that can help you make money on Forex and other financial markets.
What is copy trading? Definition
Copy trading is a form of social commerce that is gaining in popularity. This trading method is primarily designed for novice traders, allowing them to automatically or manually copy trades from more experienced traders on Forex and other financial markets.
eToro copy trade
$ 100.000
Free Demo
eToro was the first major broker to launch a copy trading platform in 2010. The developers merged the features of a social network for traders and the platform to essentially copy trades.
The feature set of current copy trading platforms allows users to sign up with traders and start copying their trades, using some or all of their capital.
Each opening of a position, assigning Stop Loss and Take Profit orders, opened by the copied trader which are also automatically executed on the copying account. There is also the option to create a certain analogue from a portfolio of different signal providers.
On most platforms, the copier can unsubscribe from a trader at any time and start trading independently or copy a different trader.
Advantages and disadvantages of copy trading
Advantage
The main benefit of copying for the novice trader is the opportunity for an easier entry into the financial market. By copying trades from expert traders, you can earn as much as they do and not be distracted from your other jobs.
Also, copy trading platforms usually have a low entry limit, ranging from $100 to $2.000. This allows even investors with a small amount of money to spare to try out this service.
Disadvantage
The biggest disadvantage of copy trading is that the excellent financial results of operators in the past do not always guarantee that they will be repeated in the future. This means that the risks are mostly similar to classic trading.
Also, on some platforms, the most successful traders charge high administration fees, which sometimes reach 30 – 40%. Other platforms, like eToro, the investor fee is limited to the broker's commission only.
• Low entry threshold
• Possibility of investing without knowledge and experience
• User-friendly feature set for copying
• Possibility to cancel the copy service subscription at any time
• Learn investment strategies using real-life examples
• Traders' results copied in the past do not always guarantee that they will be repeated in the future
• The rate of successful traders sometimes reaches 30-40%
How does copy trading work? A real life example
Let's look at a simple real-life situation. A software engineer, let's call her Maria, has $1.000 left over that she would like to invest.
The problem is that Maria doesn't have time to try to understand the ins and outs of investing. She doesn't like the bank deposit option because the profit level is often less than inflation.
How does copy trading work?
As an alternative, Maria considered trading copies in the Forex from one of the brokers. She decided to give it a try with $1.000, which she split between 5 managers with different strategies.
Using the search filters on the social trading platform, she selected 5 copied traders with different strategies and rates of return over the past year. In this case, the working model between Maria and the traders will be as follows:
| Maria | ||
| $ 200 |  copy business |
Trader 1 |
| $ 200 | copy business |
Trader 2 |
| $ 200 | copy business |
Trader 3 |
| $ 200 | copy business |
Trader 4 |
| $ 200 | copy business |
Trader 5 |
The flexibility of the settings allows Maria to do the following at any time:
Can I make money from selling copies?
Copy trading can generate higher-than-average returns and losses. Effectiveness depends on many factors, the main ones being:
- The rate of return will largely depend on the broker and the social trading platform they offer.
- The traders you chose to copy.
- Commissions and fees charged by brokers and traders
- market situation
According to eToro, in 2019 the average rate of return of the 50 most successful copy traders was 29%. However, it should always be borne in mind that profitability in the past never guarantees the same result in the present.
Experts also recommend treating brokers who promise very high rates of return on their social trading platforms with low risks, rather skeptically.
Is copy trading safe?
This largely depends on the broker you choose. It is desirable to select only well-known brokers with regulation in one of the developed countries: United Kingdom (FCA), Cyprus (CySec), Australia (ASIC).
Where to start?
- Look for the broker that offers the service
- Look for suitable traders to copy
- Compose a portfolio of copied traders
- Establish copying and risk management criteria
- Monitoring of financial results and rebalancing of wallet
Know more! ABSTRACT
AvaTrade is part of our list of best social trading platforms as it offers traders multiple direct and indirect social trading platforms.
AvaTrade has partnered with some of the best signal providers in the world to ensure traders can follow the best traders wherever they are.
They also offer self-directed trading on intuitive trading platforms on a wide range of over 250 trading instruments including forex, CFDs and cryptocurrencies.
AvaTrade social trading platforms include:
Mirror Trader — Enjoy manual, semi-automatic or automatic trading by following your preferred signal providers. You can also copy algorithmic trading strategies developed by experienced traders together with leading developers.
ZuluTrade — Select from a large number of signal providers, ranked using various practical parameters, including maximum drawdown and average profitability.
AvaTrade is one of the world's largest online brokers in terms of trading volume. They are regulated in 6 impressive jurisdictions including Europe, Australia and South Africa. Its regulatory licenses span 5 continents. This ensures that you can make safe and secure trades in the comprehensive trading environment they provide.
AvaTrade offers a variety of different social trading platforms along with competitive fees, industry-leading trading infrastructure and excellent customer support.
For these reasons and more, they easily become our best social trading platforms.
POSITIVE
- More than 250 trading instruments
- Multiple social trading platforms
- Free trading tools and indicators
- Regulation in 6 jurisdictions
- Excelente suporte to or customer
- Free Demo Account
NEGATIVE
- $ 100 minimum deposit
GALLERY
Additional information about copy trading:
How do you choose a trader to copy?
You need to approach this issue very carefully, as the potential for payback directly depends on the professional you choose.
We recommend reviewing the signal provider's financial result over a longer period of time, the longer the better, and seeing if its profit has been stable or if there have been serious drops.
Is the copy trade legal?
Trade in copies is legal in most countries. However, some regulators point out that brokerages do not always disclose to investors the full list of information about the important peculiarities of copy trading.
We recommend that you choose brokers with reliable regulations for copy trading. That way, you are more likely to choose a completely legal option.
Where to start?
To start working, you must first follow these five steps:
- Look for the broker that offers the service
- Look for suitable traders to copy
- Compose a portfolio of copied traders
- Establish copying and risk management criteria
- Monitoring of financial results and rebalancing of wallet.
Related Posts
What is the XM Forex Broker Loyalty Program?
[box_text] Forex XM Broker Loyalty Program - Trade and earn XM points that…
The Four Trading Signals You Need to Master
When it comes to the scope of Forex trading, it is very clear that all traders…
How to Open a Demo Account at XM Broker
[box_text] This lesson is dedicated to explaining how to create a demo account on the Forex broker…
Trading Psychology: Profit Targets in Forex
[box_text] Closing a trade at the most favorable price level is just as important as entering…
Beginner Traders Guide (HK50)
[box_text] If you have never traded the HK50, you may be missing a great opportunity to capitalize…
Forex Hedging (Hedge)
[box_text] Investors of all types use hedging as a strategy to protect…