Have you heard about copy trading and wondered what all the fuss was about? Even though the system has been around for a few years on the major brokerage sites, it’s finally catching on in a big way with individual investors and people who are brand new to trading online. It’s an ingenious, but not risk-free or foolproof, way to precisely follow the trades of more experienced people. In fact, unlike so many other strategies, approaches, techniques, and tactics in the world of securities, copy trading is relatively simple and straightforward. If you want to get involved, check your favorite brokerage website, make sure you have an active account, and sign up to enable the service. Here are the most important things to know about the process before deciding to try it out for yourself.
It’s Gaining in Popularity
Since 2010, many of the world’s top online brokerage firms have offered copy trading services to their account holders. Newcomers who sign up for copy trading with AvaTrade can select a signal provider from a list of experts. Doing so can be an effective way of learning the nuts and bolts of the marketplace. This is particularly true when the copying trader follows all the transactions and spends time studying the rationale behind the expert’s decisions.
There Are Fees
Most trade leaders and experts charge fees in the form of a percentage of your profits. So, don’t be surprised to see a deduction from your earnings should you be fortunate enough to earn a profit from copy trade activities. However, all fee structures are fully transparent. When you select someone to follow, the fee will be stated in their history summary, along with other important parameters like the track record, etc.
You Can Always Opt Out
Those who first hear about copying tend to worry about getting locked in with a signal provider. The good news is that you can disconnect from the leader whenever you wish. Note that if you drop from a copying arrangement, all your positions are liquidated at market value in most cases. That’s why it’s best to experiment with small amounts of capital for several weeks, at least, before committing a significant amount of money to any particular signal provider.
Practice Accounts Are Available
The top brokers offer simulators, also known as demo accounts. Traders use them to practice techniques without risking real money. Luckily, you can do the same thing with copying by signing up as a follower on a leader’s roster even though you’re not using real money. Note that some platforms use 100 percent hypothetical environments, which means you won’t really be following an expert. Instead, the simulator uses a robot to generate trades, but you’ll still get the experience of seeing how the process of copying works. Plus, there are no fees to use the simulator.
Some of the advantages of copying another person’s trading activity are obvious, especially in the case of brand-new investors who seek guidance from more experienced traders. The learning process can be considerably shortened for those who make good use of the leader-follower relationship. Instead of setting up a copy trading account and checking in on it every other day or so, it makes good sense to follow all the action and try to understand why the providers make the decisions they make. Another plus is that users can choose whom they wish to follow. Likewise, you can commit any amount of funds to the arrangement, thus setting the risk at a desirable level based on your risk tolerance.
For those who don’t have time to make daily trade-related decisions and are comfortable setting up an automated copy trade account, there’s a huge measure of convenience. Not only do followers save time on research and position monitoring, but they avoid the need to devote hours each day to the pursuit of profits. Copying services offered by brokerages have brought huge numbers of people into the investing universe and helped them learn the basics. Eventually, most of those beginners choose to split their accounts between self-directed buying and selling and copy trading.
There Are Risks
Even though a trader fully controls the amount of capital to place into the account, some of the designated leaders move quickly, and even as you follow along, it’s possible to endure losses of potentially all the money you placed into the hands of the expert’s hands. Fortunately, there are effective ways to minimize this hazard. Consider starting small and following all the action in real-time for the first few copies you do. It’s also helpful to rotate through several of the lead traders offered by your brokerage. By doing so, you’re essentially diversifying your portfolio of experts. Plus, keeping the amounts very small in the beginning will work to protect your account from a major blowout.