Did you recently come across copy trading and wondering what it is? Well, you’re in luck, as today’s post has everything you need to know about copy trading. To give you a brief background, copy trading involves replicating professional traders’ positions through social platforms, automated tools, and signals.
Copy trading is especially popular among forex traders and is available on third-party platforms like MetaTrader 4. Today’s guide will cover everything you need to know about copy trading, including key features. We would also use the opportunity to cover some pros and cons of social trading and list out some of the best copy trading platforms you can use.
There are an impressive number of copy trading platforms you can start using right away. While these platforms offer proprietary copy trading services, they also offer third-party copy trading for interested traders. Even though copy trading is prevalent among forex traders, some crypto exchange and CFD brokers are catching up with the trend and now offering social and copy trading services. These exchanges include the likes of Coinbase and Binance.
Copy trading: What is it?
Copy trading is generating a lot of buzz and that’s because of its unique proposition. Copy trading provides traders an opportunity to either manually or automatically copy other traders’ positions, either opened or closed. With copy trading, traders have the chance to communicate their positions using signals via a social network or forum. Typically, these social networks have followers who sign up to copy trades opened by professional traders with a track record of wins.
Copy trading is very closely linked to mirror trading, albeit with some differences. With mirror trading, traders simply copy trades blindly instead of replicating top strategies used by top traders.
With copy trading, traders have the opportunity to copy positions in different markets, including stocks, forex, crypto, options, and CFDs. And as we mentioned earlier, you can also copy trades on popular digital assets like BTC or precious metals like Copper, Gold, or Platinum.
Top Recommended Platforms
78% of retail investor accounts lose money trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trading forex or CFDs on margin involves a high degree of risk and may not be suitable for all investors. There is a possibility that you may suffer a loss equal to or greater than your entire investment.
CFDs are complex instruments and involve a high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Copy trading: How does it work?
Now that you know what copy trading is, it’s time to show you how it works. Read on for all the details.
Copy trading allows traders to connect some of their portfolios with someone else’s, where trades opened on the master account are automatically replicated on traders’ accounts. Copy trading is an incredible way for traders to diversify their portfolios. Through copy trading, a trader can decide to follow trades executed by a long-term investor in the stock market.
We love the flexibility that copy trading offers, especially since traders can choose how much they want to invest. More so, traders have the option to fund more or less depending on the success rate of a trader. While copy trading sounds like a brilliant idea and comes with many positives, keep in mind that this trading strategy isn’t immune to risks. So before deciding to give copy trading a try, we always recommend that traders do their due diligence, especially understanding how copy trading works before opting in.
Also, remember that while some platforms give you complete control of your fund, with some platforms, copy trading operates on a fixed system, so you won’t have control over your funds. While a fixed system may give you the option to stop copying a trader, you may not have much control elsewhere.
Copy Trading Platforms
Depending on the broker or exchange you’re using, copy trading will typically be offered via dedicated software from the broker or via third-party platforms we will be looking at shortly. Also, let us add that some brokers often provide access to additional research tools or networking forums such as Telegram and TradingView.
Copy trading via MetaTrader 4
MT4 offers copy trading services where traders can mirror the trades and strategies of successful traders. To get access to copy trading via MT4, simply navigate to the signal tab, where you’ll gain access to over 3,200 free and paid trade signals from leading forex providers. With MT4 copy trading service, traders are typically ranked in order of results. This makes it easy for traders interested in copy trading services to choose a provider and other parameters. With everything in place, you can start copying trades both in live and demo settings.
Copy trading via MetaTrader 5
Like MT4, MT5 also offers copy trading services, where traders can replicate trades executed by leading traders. What’s incredibly unique about the copy trading feature on MetaTrader is that both master and followers do not need to use the same broker, and that’s because the MT5 platform links traders across continents and brokerages. With MT5, subscription charges for copy trading are fixed. More so, rapid exchanges help to drastically reduce execution delays.
Copy Trading with cTrader
Another brilliant platform for CopyTrading is the cTrader solution. Once traders sign up on this platform, they can navigate to the copy trading section to access strategies and compare the risk appetite, history, and providers’ fees. With cTrader copy trading, traders have the option to choose how much they would love to allocate to mirror professional traders’ positions. More so, traders using the cTrader platform are free to copy trades of multiple traders simultaneously.
Copy trading with DupliTrade
If you’re interested in automated trading, you won’t be disappointed to check out DupliTrade, as they offer some of the most structured copy trading services we have come across so far. With DupliTrade, traders can choose what portion of trades they would love to copy. They also have the option to scale up or down, depending on what works for them.
What’s more exciting about DupliTrade is that traders can copy trades in forex, stocks, commodities, or indices markets.
Traders who intend to use DupliTrade to sell their signals often need to pass rigorous audit progress. On the flip slide, traders copying trades have access to facts and figures they need to make an informed decision.
eToro copy trading
eToro offers one of the most comprehensive copy trading services we have seen so far. What’s more exciting about the copy trading services provided by eToro is that it is properly structured. More so, the platform boasts of having tons of traders accessing their copy trading services. In terms of success rate, eToro copy trading services stand out from the pack, which explains why many traders trust its services. Read our eToro.com review to learn everything you need to know about eToro copy trading services.
Copy trading vs. social trading
Social trading focuses more on providing ideas, and insights traders can leverage to form their bias. Social trading also helps traders develop new trading strategies, share ideas, and invest in tools. On the flip side, copy trading entails replicating trades from other professional traders.
We highly recommend starting with social trading to sharpen your trading skills, as it would help you understand trends and market behaviors. Once you have a grasp of this, you can then move to copy trading.
Online brokers like eToro offer comprehensive social trading services with the resources, strategies, and the right community to take your trade to the next level.
Copy trading cryptocurrency
Cryptocurrencies are becoming attractive to people who want to earn passive income trading financial instruments. And guess what? Many brokers and exchanges are beginning to offer copy trading for top digital assets, including Ethereum, Bitcoin, Litecoin, BnB, and more. Just like you’d typically copy forex positions, crypto traders interested in copy trading can mirror trades on crypto-only pairs.
Top providers such eToro offer comprehensive copy trading services for cryptocurrencies. Other crypto platforms providing copy trading services for digital assets include 3Commas and Coinmatics. What’s even more interesting about Coinmatics and 3Commas is that they offer high-performing crypto copy trading robots that provide quick real-time trade execution. More so, these platforms are user-friendly, so you’ll find your way easily.
Copy trading app
One of the many benefits of copy trading is that you don’t have to spend tons of hours analyzing the financial markets, as professional traders handle the bulk of that. This makes it easy to manage your copy trading account and track your performance directly on your smartphone.
Top copy trading providers like eToro, MetaTrader 4, MT5, and other popular providers have dedicated mobile apps for iOS and Android devices. Once these apps are installed, clients can seamlessly compare strategies, and trades, fund their accounts and copy trades directly on their mobile devices with just a few clicks.
Copy trading strategy
It’s super important to take some time to consider how your trading strategy aligns with that of your preferred copy trading provider. Doing this will ensure there isn’t a sharp difference in risk tolerance. That said, here are some critical strategy considerations you should know:
Risk: Traders need to quantify their risk appetite. Ask yourself questions like how much volatility you’re willing to accept? Also, determine the type of alerts and tools you’ll need to manage your risks.
Markets: What financial markets are you looking to invest in? Stocks, indices, crypto, forex, and commodities are top-rated markets. Before opting for copy trading, it’s important to know the markets you’d like to invest your money in.
Fixed or flexible: What level of control are you looking to have over your capital? Fixed and fully automated copy systems allow traders to mirror traders but have little control or input. If you want more control over your copy trading account, we recommend opting for a platform with an open and flexible system.
Research: While copy trading comes with many exciting perks, it’s essential to add that it comes with some risks too. So it’s crucial you do your due diligence before exploring copy trading. Before you sign up for copy trading with any provider, take some time to research the platform carefully. Also, ensure you regularly monitor trade performance, as your capital is at stake.
Leverage: Leveraged copy trading offers traders a unique opportunity to increase their position sizes using a small capital outlay. With this option, copy traders are able to increase their profit potential and diversify their portfolio by mirroring trades from multiple providers. Depending on jurisdictions, leverage rates tend to vary. For instance, CySEC-regulated brokers cannot offer leverage of more than 1:30.
Copy trading signals
As the name implies, signals are indicators that allow followers to take a position on the markets. Once you have received a signal, you can proceed to edit your settings and trading parameters to suit your strategy. Compared to fixed and automated copy trading, signals offer more flexibility. Before executing trades, it’s important you tweak your trade size, stop loss and take profit levels.
MetaTrader 4 and MetaTrader 5 are leading signal providers, where traders have seamless access to top traders offering free and paid alerts.
Advantages of copy trading
Great for newbies: One of the major benefits of copy trading is the simplicity and convenience it offers, especially for someone just starting out. With copy trading, you don’t need in-depth trading knowledge to benefit from the financial markets. If you have been looking to trade financial instruments, copy trading is an excellent way to get started.
Demo accounts: Some exchanges and brokers provide customers access to demo copy trading accounts. This is a brilliant option for traders who want to test the waters to see how copy trading works. And yes, demo accounts are offered free of charge and are risk-free too.
Regulated practice: Copy trading is recognized by leading regulators, including the FCA, CySEC, MiFID, and ESMA. Opting for a licensed and reputable broker is a smart thing to do, especially if you care about the safety of your funds.
Portfolio diversification: With copy trading, traders get seamless access to different opportunities and trends. This allows them to diversify their portfolio.
Disadvantages of copy trading
Risk: The risks that come with copy trading can be high, and that’s regardless of your trading experience. If a copy trade doesn’t play out well, you’ll end up losing some money.
Control: With many copy trading platforms, traders have limited control over their trades. So keep this in mind before opting for copy trading.
Fees: Depending on the exchange or broker, copy trading does attract some fees. On eToro, for instance, traders pay a masters’ commission. There is also a minimum deposit you’ll need to fund in your copy trading account. With eToro, there is a minimum deposit of $200.
Not accessible in the U.S.: Because of regulatory concerns, copy trading services aren’t accessible to clients in the U.S. And that’s because of the Dodd-Frank Act, an act put in place to protect U.S. consumers from risks and abusive practices.
Copy trading is a brilliant way for newbies to get some exposure to financial markets and make some profit even before they become pros. With copy trading, traders can have a first-hand experience of the success and failures of trading. But despite the fantastic perks of copy trading, it comes with significant risks and very little control. Again, copy trading isn’t for anyone. So before you jump on the hype, it’s essential to do your due diligence.