Decoding Copy Trading

When you replicate a trader’s position, that is essentially called copy trading. The goal to copy trade is attaining the end result of trading without putting much effort on your part.

Image explaining what copy trading is.
Image created by Market Business News.

History of Copy Trading

Back in 2005, traders used to copy specific algorithms for automated trading. They had to monitor email signals or join trading chat rooms to get an algorithm that they could use on their trading account. And soon there was a thought that it would be possible to directly copy a trading system or a trader rather than manually copy-pasting the algorithms. And this gave birth to the concept of copy trading where you mirror the trade positions of another trader. The trade positions get copied to your account automatically which eliminates the need for manual trading.

How the Concept of Copy Trading Gained Popularity Over the Years

A bitter truth about trading is that only a small percentage of traders make it to the winning side in the long run. Roughly about 90% of forex traders end up on the losing side forever. That means only 10% would be consistently profitable by trading on their own or with manual trading. And getting to the top 10 takes a lot of learning and effort without a doubt. The learning curve can be a prolonged one for a beginner and this fact discourages many newbies from attempting trading in the first place.

To them, copy trading looked like an attractive alternative as they will be able to trade without much knowledge or prior experience. Thus skipping the long hours of learning for months and the time-consuming process of devising a trading plan or strategy by themselves. This truly saves a lot of time for an average beginner or a novice trader who is unable to wrap their head around the technical concepts. And this made everyone realize the potential of copy trading, taking it to the next level.

Simplified and Effortless Trading Experience

Trading by yourself may seem like a complex and tiring process when you are learning everything from scratch, because trading may not be everyone’s cup of tea. And the time taken to learn will depend upon each trader’s grasping power and capabilities. So, copy trading is set up with the intention of simplifying this process and encouraging newbies by providing them with an effortless trading experience. No need to go on a hunt for a suitable strategy or backtest hundreds of trades for practice.

You simply choose the trader you wish to copy and their trade positions will be mirrored in your trading account in no time. There will be experienced and knowledgeable traders who are willing to let you copy their trades. Hence you will be making profits using someone else’s knowledge, skills, and strategy.

Choosing the Right Trader

The trader you choose to follow will be a crucial step toward successful copy trading. Now talking about the selection process, it is needless to mention that one would have to look at the profits that are made by a trader till now. But that is not the only factor to consider in this regard. The trader should fit right with your investment levels, risk tolerance, and more. It is about finding the perfect match for yourself since it is more like getting someone to trade on your behalf.

You will be able to choose the right one for you when you have a number of traders to consider as a choice in the first place. Hence, joining a popular copy trading platform would be your first step in the process.

Make sure the platform will provide you with all the essential tools for copy trading along with a transparent ranking system and advanced search filters. This will be a great help for you to filter the traders and narrow down your choices to the traders who resonate with you and meet your requirements.

Risks and Rewards in Copy Trading

Trading is a risky venture, to say the least, and some amount of risk applies to copy trading as well. But it is far less than the risks of manual trading. Many things can go wrong when you attempt to trade on your own without enough knowledge and skills. But in copy trading, you will make up for the knowledge and skills that you lack by following the footsteps of a trader who has them. Still, you will be selecting a trader on the basis of their past performance alone. And past performance is not a guarantee for future success. That is the only risk you have to deal with while getting into copy trading.

But the risk element in copy trading is surely worth the rewards that you will be getting in the end. You are getting access to an already profitable trading system, a fully functional strategy and an expert trader in charge of opening and closing the trade positions on your behalf. It is perfect to explore the markets with minimal effort from your side. The exposure to risk is way lesser and the chances of trades resulting in profits are much more.

Increase Your Odds of Success

In the end, I want to say that copy trading is just a method for increasing your odds of success. But the end result will greatly depend upon the way you manage your own risk. I will recommend you closely monitor the trading systems and traders that you follow for finding any deviation in performance. But you are surely one step closer to success when you understand this simple concept of copy trading and apply it properly.

Interesting Related Article: “How To Get The Most Out Of Copy Trading?