what is copy trading – To become a reliable trader, generally a novice trader needs to develop their technical analysis skills as well as experience a process of ups and downs that can take a while. However, nowadays technological developments allow a beginner to enter the world of trading in a variety of easier ways. One of these ways is to use the copy trading feature or application.
Currently, there are many best trading platforms that provide this facility to attract the hearts of novice traders. But, what is copy trading and how can this feature generate profits for novice traders? Check out the following review.
- 1 Understanding Copy Trading
- 2 How Copy Trading Works?
- 3 Copy Trading Advantages
- 4 Copy Trading Risk
- 5 Is Copy Trading Right For You?
- 6 The Best Platform For Copy Trading
Understanding Copy Trading
Copy trading is the act of a trader copying the strategies and positions of a professional trader. This action can be done legally because copy traders are required to set aside the profits they get to pay professional traders whose strategies are copied.
This strategy can be applied to trading any stock from forex to cryptocurrencies. Thus novice traders can profit from the positions and strategies chosen, while professional traders benefit from commissions from traders who copy their strategies.
How Copy Trading Works?
Broadly speaking, the way copy trading works is that new traders are required to choose professional traders whose strategies and positions they will copy. Once he decides to copy a particular trader’s strategy, the new trader will open a short position if his master trader opens a sell and will open a long position if his master trader opens a long position.
This also applies if the master trader suffers a loss. If the master trader suffers a loss, the new trader will also lose. Thus, the challenge for a new trader who wants to trade using this method is to determine the best master trader.
But, you dont have to worry. Because usually the copy trading application provider has provided the master trader profile data you need, such as trading experience and advantages in the last few periods, the minimum trading value to how much commission you need to spend to pay the master trader.
Therefore, to make this transaction you also need to be careful to choose the best master trader. Carefully check all their track records and if you have found the best master trader, you can immediately click the copy button in the application.
After that, your account will automatically follow the strategies and positions opened by the relevant master trader.
Copy Trading Advantages
This strategy has become increasingly popular in recent times because it has the following advantages:
1. Save time and effort
The main advantage of copy trading is that you can save time and effort because you don’t have to bother studying all the strategies and technical analysis in depth. This is because you just “obey” with any strategy applied by the master trader who incidentally is an experienced trader.
Apart from that, you also don’t have to go up and down in the face of market fluctuations that are often unpredictable. The master trader here is like an investment manager in mutual funds. You just need to follow their trading strategy and you will get profit.
2. Lower trading risk
Basically, trading is a financial activity that has a high risk due to erratic market fluctuations. Of course, this risk will be higher if you are determined to play trading without sufficient knowledge about the trading mechanism and the various analyzes needed.
With this copy trading, beginners who are interested in entering the world of trading can make transactions with a lower level of worry because they don’t need to study in-depth analysis and just copy the strategies of professional traders.
Copy trading facilities can be an educational tool for beginners who are interested in entering the world of trading but do not yet have sufficient skills. By using this facility, beginners can imitate the trading strategies of professional traders before developing and implementing their own strategies.
This is not to mention that some trading platforms provide social trading facilities where novice traders and master traders can exchange ideas about suitable trading strategies in more depth.
4. Provide additional income for talented traders
In contrast to mutual fund investment managers who are incorporated into a company, master traders in copy trading are generally individuals who have previously been successful in this world.
Thus, these experienced traders have the opportunity to gain trading profits not only from price changes, but also from the commissions deposited by copying traders.
Copy Trading Risk
Although it has a relatively lower risk than if you trade independently, it does not mean that copy trading does not come without risk. The following are some of the risks of transactions using this method:
1. Risk of loss
Loss in the world of trading is a common thing. The difference is, in copy trading, a copier can lose from a trading strategy that he did not create himself so that it cannot be evaluated.
2. Technical risk
Another risk that can arise from copy trading is technical risk. As for the technical intent here, such as, sell or buy signals
i that is not real time, rising asset prices, and others. Although this technical risk may seem trivial, it can more or less affect one’s chances of profiting from using this method.
3. Emotional risk
The last and greatest risk for both copyists and master traders is emotional risk. The reason is, generally copyists are new traders who do not understand the ins and outs of trading so that if there are technical losses or problems, they tend to consult with the master trader they are copying.
On the other hand, a master trader is required to be objective and concentrated in managing the assets traded. The existence of complaints and consultations from copyists who are not managed by the application provider will actually worsen their emotional condition which can affect the trading results they get.
Is Copy Trading Right For You?
Actually there are no special characteristics about people who are suitable for copy trading. However, you need to remember that basically trading is a high-risk financial transaction, so this transaction should be carried out by traders with a high risk tolerance as well.
More than that, it is better if copy trading is also done while you learn about the ins and outs of trading as a whole so that you can correct the master trader’s trading strategy without confirming the strategy error to the master trader concerned.
The Best Platform For Copy Trading
Not all stock brokers provide copy trading services. Even among those that provide, not all of them provide interesting features.
Here are 5 recommended platforms if you are interested in copy trading:
- eToro – has the best software
- FBS – offers a choice of hundreds of strategy providers
- ZuluTrade – best for novice traders
- Mirror Trade – many strategy options
- Duplikium – can have multiple accounts