Copy trading is an increasingly popular way of carrying out trades based on what the experts suggest. It’s an approach that involves making exactly the same trades as an established trader that you’ve chosen to follow. Copy trading for beginners is a simple way to start trading, since you just need to choose an experienced trader and opt to automatically make the same trades that they make.
The basic idea is that you benefit from making the same moves as an established trader, without having to study the markets or learn all the different aspects of trading successfully. Copy trading isn’t a guarantee that you’ll make profits, but it offers an interesting approach for anyone who wants to start trading without any delay.
What Is Copy Trading and How Does It Work?
Building on the basic definition of copy trading, we can now look at how it works. When you want to trade in this way, you can look at the experienced traders on the platform who offer this service. Choose one that fits your goals and start following them.
There are various factors to consider when deciding which trader to follow. You’ll be able to see details such as their performance to date. This allows you to follow the top-performing traders based on recent data, or to filter for anyone who has been offering copy trading for a long time. However, you should be aware that this doesn’t guarantee future returns, since even the top traders can make the wrong moves and lose money at times.
As a follower, you will automatically copy the trades made by the lead trader you select. You’ll be buying and selling the same assets when they do. All of the same details they include, such as stop loss and take profit levels, will be used on your trades. It’s as simple as letting the trades go ahead on this basis, with no other actions needed.
This copy trading strategy can be changed at any time, if you decide to stop following that trader or want to choose another lead trader. It’s a good idea to keep an eye on your profits and decide whether it makes sense to change the trader you’re following at any point.
Who Uses Copy Trading and Why?
There are several reasons for adopting a copy trading strategy, which help to explain why it’s so popular among different traders. The first type of person who might consider this approach is a newcomer to the markets. Copy trading for beginners is an easy way to get started and start making trades while learning about the markets by observing what the lead trader does. There’s no need to make decisions on what to buy and sell, but by simply paying attention, you can learn how experienced traders operate.
It isn’t the case that only beginners use this type of trading strategy. An experienced trader may also feel that it makes sense for them to follow someone at times. This approach can also be beneficial for people who consider themselves passive investors. They may want exposure to the markets but prefer to let others make the big decisions about when to buy and sell. Copy trading provides easy access, where they simply let others make the decisions that matter. This allows even a passive trader to have an active approach to trading in any market.
Traders who are short on time might also consider trading copy strategies. This allows them to start trading in the market without dedicating as much time as would otherwise be necessary. Studying the relevant charts and carrying out technical analysis can be time-consuming, while a copy trading strategy passes this task on to the trader that you follow. It may even be seen as a temporary measure for someone who is unable to dedicate as much time as usual to trading but who doesn’t want to stop doing it altogether.
Copy Trading Strategy Basics
Before starting any copy trading strategies, there are some basic points to take into account. The first concerns the type of trades you want to make. Copy trading is available in markets such as forex and share trading, so it’s worth taking a moment to consider the areas you want to focus on. Even though you won’t be making the decisions on when to buy and sell, you still need to feel that it’s a market where you’ll be comfortable operating.
You should also think about your risk levels and the frequency of trades you’d be comfortable with. Check the lead trader’s overall strategy and goals to see if they align with the approach that you have in mind. Do they opt mainly for safer trades, or do they have a more aggressive approach to trying to gain profits? Some traders will give you relatively few trades to follow, while others will have a much higher frequency, making it important to understand which way of operating suits you best.
Remember that you’ll be following the trades made rather than controlling them, so you need to make the right decisions at the start to then let the trading copy strategy run from there. If you do well, you can simply let the relationship continue as you automatically follow their trades, knowing that their approach is aligned with yours at all times.
Benefits and Drawbacks of Copy Trading
Copy trading offers several advantages. The following are among the key benefits that help to show how this approach to trading suits a variety of users for different reasons.
- It’s a simplified way of participating in the markets. There are various reasons why this appeals to many traders. A lack of experience or a lack of time are among the most common explanations for the growth of this method of trading in recent years. Some people may see this as a way to learn while making their first trades, but others will be comfortable simply copy trading for as long as it makes sense for them to do so.
- Exposure to the strategies and ideas used by experienced traders. Learning all the top ways to trade can take a long time, so copy trading strategies are viewed by some people as a quicker way to learn the ropes while looking to earn profits.
- A time-efficient way of trading. Not everyone has the time to spend all day looking for the best trades. This is where it could make sense to follow a trader and save time.
- A way to diversify your portfolio. This can prove to be an excellent way of getting exposure to markets that you might not otherwise enter. By following more than one trader, you can also get greater diversification without having to study various markets.
The possibility of having others copy your trades in the future. If you start by copying the trades of others, you might find that the natural progression leads you to offering copy trading services in the future. This is a way of earning commission and can prove to be a regular source of passive income when carried out well.
What about the potential disadvantages of this way of trading? Before following a trader, you might want to consider how important these points are to you.
- Lack of control over the trades carried out, since you simply follow the lead trader’s move. Not everyone is happy doing this all the time, and you might feel that you would like to have more input into the trades you make.
- The performance may vary, depending on the decisions taken by the lead trader and the market conditions. Even a trader with a successful track record could go through a losing streak where they make some poor choices that affect you.
It may stop you from learning trading skills. If you rely solely on copying others’ trades, it could remove the incentive you need to learn trading skills. For those people who are looking to become expert traders, this might not be the ideal approach.
Copy Trading Strategy FAQs
Can Anyone Carry Out a Copy Trading Strategy?
Yes, this strategy is available for anyone looking for a simple way to enter the markets. You need to choose a trader to follow, meaning that you will automatically start to copy the trades that they make.
Is Copy Trading Profitable?
It depends on the lead trader you choose and the changing market conditions. No copy trading strategy guarantees that you’ll make a profit.
Is Copy Trading Available for Beginners?
Yes, this is an approach chosen by many beginners who want to get started with trading. However, experienced traders also use copy trading to save time and diversify their portfolios.
Can I Become a Lead Trader That Others Follow?
Yes, by building up a successful portfolio, you can offer copy trading strategies to others. This is a way of earning passive income that is worth looking into once you gain the necessary skills and experience.
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