Copy Trading: What is It and How Do I Get Started?

For an inexperienced trader, copy trading is a dream come true. Instead of flailing around in the dark, you can copy the trades of more experienced traders and make a profit. You would be forgiven for thinking this sounds too good to be true, but copy trading is a very real technique and it can work for you. Here is a guide to copy trading and how to get started.

What is Copy Trading?

Copy trading, in simple terms, is copying someone else’s trades. Say, for example, you follow a professional trader called Mike and he works with EUR/USD in the forex markets. Each time he makes a trade, you follow suit. Using copy trading, Mike’s trades are mirrored in your trading account automatically. If Mike makes a profit, you do too.

What are Copy Trading Platforms?

Copy trading platforms such as eToro enable amateur traders to connect with more experienced traders, such as fictional Mike. A social trading platform is a cross between Facebook and a broker. Every trader’s account on a social trading platform is visible to other users, so their trading activities are open and transparent. This makes it easy to spot which traders are making consistent profits.

Social trading is becoming increasingly popular and there are several sites to choose from. eToro is well-known, but others, such as ZuluTrade, Darwinex, Naga Trader, and FX Junction are worth checking out too. For more information, you can read the InvestinGoal poston the best copy trading platforms available to use. Most are free to join, and some offer free virtual money, so you can practice copy trading with a demo account.

Does Copy Trading Work?

There is plenty of evidence to suggest copy trading is an excellent strategy. Obviously, your success is dependent on the trader you copy making a profit, but because it is easy to see whether a trader is good at what they do, your chances of making a steady stream of losses are low. In addition, you can follow more than one trader. This allows you to diversify your investment portfolio, so you can minimiseyour losses.

Is Copy Trading Good for Beginners?

Yes! Copy trading is ideal for beginners. You don’t need to have an in-depth understanding of how trading works. By following another trader’s activities and copying exactly what they do, you can learn the ropes. It is rather like an apprenticeship in trading, except you have an opportunity to make serious money instead of being paid peanuts.

Trading in forex, indices, commodities, or anything else requires a lot of experience. Most traders spend many years learning their skills, often losing significant sums of money in the process. You don’t need to spend years learning all about trading to use a copy trading platform, which is why it’s such an attractive option for new traders.

Getting Started

To begin copy trading, you need to open a trading account with a broker. This is where your trades happen. Next, open an account on a copy trading website and link this with your broker account. Look for traders that you want to follow. The social trading website sends trade signals to your trading account, which then replicates the trades.

Obviously, you may be working with a significantly lower trading capital, but that’s OK. The copy trading platform has in-built settings that modify how trades are replicated.

Finding Traders to Copy

Your success hinges on copying the right traders. This is where you need to be careful, as poor choices at this point could wipe out your trading account fairly quickly.

Look at a broad spread of trading accounts on a site like eToro or ZuluTrade. Analysetheir profits over a reasonable length of time, say 12 months. Some will have a profit rating of less than 10%. Others will be up there in the 80%+ region. Neither of these isany good to you. One isn’t that profitable, and the other is so profitable they are clearly very lucky, very reckless, or both.

Look for a trader who has been on the platform for a minimum of one year. The best traders to follow have a low-riskscore, are activeand make an annual return of between 10% and 30%. This indicates they know what they are doing and are consistent in their trading.

Start with a Demo Account

Begin with a demo account. Most brokers offer demo accounts and they are a useful opportunity to get a feel for how trading works.  Link your broker account to the copy trading platform and select a handful of traders to follow. Start copying their trades.Analyseeach trade to see what the trader did and why. Over time, you should begin to see patterns in what they do, which in turn will help you formulate your own trading strategy.

Eventually, you will be ready to go it alone with a full trading account. When this moment comes, it is time to celebrate!

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