Copy trading is a trading technique available in certain Forex and binary options platforms where users are allowed to copy and execute the trades of other successful investors. Copy trading is very helpful for beginners who are new to the market and don’t have the technical expertise required for trading. They use copy trading strategy to copy and execute the trades of other experienced traders in the market. Social trading networks are more popular especially in Forex and binary options trading. Many brokers offer social trading feature especially to attract new investors who don’t have enough market knowledge.
As a beginner,itmight be very helpful for you to find the popular investors in a social trading network and follow their trading activities. Many trading networks like Copyop rank the successful investors based on their trading performance and success ratio which can be useful for newbies to choose the best traders to follow. You can adopt the trading strategy of any investor that suits your trading style and make money without knowing much about the market trends. You can also interact directly with other experienced investors and get useful market suggestions and trading tips from them.
As a beginner, you should also understand the risks and limitations of copy trading. No trader is considered to be 100% successful and any experienced trader can go wrong sometimes and make incorrect trading decisions. Hence if you blindly follow a single investor and automatically execute his trades by investing all your capital, there are chances that you might lose your money if your mentor takes any incorrect trading decisions. It’s not possible for any investor to accurately predict the market and consistently succeed in all his trades. Therefore even if you are copying the most experienced and talented investors, there are always chances for the market to suddenly move in the opposite direction and the investor whom you are copying might go absolutely wrong. So, you should be always careful and keep an eye on the market conditions without blindly following any investor. Any trader who has lot of followers can go crash and burn eventually.
Another risk associated with social trading network is that every user can follow you and keep track of your investments. Some copy trading networks also allows users to view the personal profiles of other traders and to interact with them directly. You should be careful about the security risks associated with such social trading network since your actions can be tracked by any user who has a trading account with your broker. Social trading helps beginners with less understanding of the market trends to communicate, follow and copy other experienced investors. You should never bet your entire account balance on any single investor and copy his trades blindly as you will end up closing your trading account if your decision goes wrong. You still need to do your homework and market analysis before you copy any investor as majority of the investors are always losing money.
The popular investors in any social trading network will receive commissions for every trade which is executed by someone who follows them and this varies depend on the number of copiers that any successful investor has behind him. You should also check the historical data of the trader and his past success ratio before you decide to copy any investor.
Some copy trading networks allow beginners to automatically copy and execute the trades of other investors using software or trading robots. This software will automatically generate a trade signal and opens up a trade on your account by copying any investor whom you specify. This can be highly risky for any beginner as they will not have any control on their trades and has a potential risk of losing all your money. Money management is important for any trader and if you enable automatic execution of the trades without planning your investment orfollowing the market trends closely, you will end up becoming bankrupt. You should never overexpose your account or invest huge amount without analysing the current market conditions.
Copy trading has its own hidden risks, especially lack of diversification among various asset classes and blind adoption of trading strategy followed by your mentor. There are also possibilities of your trading account getting hacked since many copy trading networks don’t have sufficient level of security to protect your account. Also many copy trading networks provide inaccurate or manipulated statistics to attract beginners and promote themselves. So you might start following an investor based on such inaccurate data and end up losing money. Any big financial event like interest rate hike or jobs report can result in sudden changes in the market trend and the person whom you are following can go wrong which means you will also lose your money. In order to effectively make money using copy trading, you should interact with various traders and engage with trading community. You should also keep track of the market trends without blindly following any single investor.