11 Things You Need To Know About Mirror Trading
Online Mirror Trading
What is Mirror Trading?
Mirror trading is a style of trading that emerged in the early 2000′s. It is a form of forex trading that allows one trader to follow the trades and trading style of another.
This type of trading service was originally only available to institutional clients managing large sums and multiple accounts.
Over the past years mirror trading has grown into a vast industry that intersects with other forms of copy and social trading.
“ Mirror trading is not a set it and forget it endeavour. ”
Mirror trading is known by a number of other names but they all mean the same thing. Social trading and copy trading are probably the two most well known names.
Regardless of what you call it mirror trading is the practice of following someone else trades.
Newer traders can follow along and learn from professionals or those who simply prefer the mirror trade to other forms of investing can build their portfolio’s.
Emotions of Trading
Mirror trading is intended to help prevent investors from making decisions based on emotions like fear and greed.
Emotional trading is the surest way to lose your account and something all successful traders have been able to overcome.
Fear and greed are two of the most powerful emotions humans experience and when you add in the possibilities of winning or losing money they are intensified.
Mirror trading allows traders to separate themselves from the market and the need to even make decisions.
Two Sides of Mirror Trading
There are two sides to every mirror trade; the pro and the follower. The pro is the one who hosts an account, follows the market and makes regular trades based on a strategy and system.
The follower, also known as a mirror trader, is the one who searches for successful traders and then mimics their moves.
This can be done be linking accounts for automatic trade execution or it could be done by entering trades upon a pros recommendation.
Mirror trading is like owning mutual funds. A mutual fund is an investment vehicle based on a stock, option, bond, currency or other strategy.
Professional Money Manager
It is managed by a professional trader/money manager and you profit when he profits.
A mirror trading account is exactly the same. By following a pro, linking your account, you are in essence owning a share of an investment vehicle based on the trading style and risk management of the chosen professional.
Most mirror trading platforms allow you to follow more than one pro so you can have a well balanced portfolio.
Not All Mirror Trading is the Same
Mirror trading platforms are not all the same. This type of trading has evolved into the greater world of copy trading and social trading.
Some platforms are third party web sites that require you to also have a forex account somewhere else, some forex brokers offer a mirror trading service along side regular trading.
The very best platforms will also have forums which for me is the best feature. I highly recommend thoroughly checking out at least 4 platforms before choosing one.
Auto Execute Trades
The very best mirror trading auto executes. Technically all true mirror trading is auto executable but any form of social trading can also be called mirror trading.
Auto executable means that trades made by the pros are automatically entered to your account as well, and any other account linked to the master account.
Allways Adjust your Account Allocation
When you choose a trader to follow you will be able to set the amount of your account allocated to each trader and even with some platforms which trades will be executed.
For instance, if you don’t want a certain traders EUR/USD trades in your account you can opt out of those trades.
Mirror trading is not a set it and forget
Mirror trading is not a set it and forget it endeavour. Trading of any sort involves risk and mirror trading is no different.
In fact, it may even carry more risk in some respects.
When used correctly it can limit your risk of making bad trades which is a good thing. When used incorrectly it can open your account to unlimited losses.
Get to Know who you are Following
You must learn who it is you are following. You must keep up with their progress and you must manage your account like any other portfolio in your investment cache.
Mirror trading has certain distinct advantages over more traditional algorithmic trading.
With an automated algorithmic trading system you are linked to the account, the trades are placed automatically and you are separated from making the hard decision but you are not in control.
You are at the mercy of only one algorithm, one trading style. With mirror trading you gain all the advantages of pure algorithmic trading but retain the control of portfolio management.
Know the Risks before you Start
There is just as much risk in a mirror trade as any other form of trading, maybe more. I think it is understood by everyone that trading in the financial markets involves certain amounts of risk.
Mirror trading is meant to alleviate that risk but if you approach it blindly you can open your self up to devastating losses.
If you do not know who it is you are following, what it is they are trading or how they manage their account you can easily find your self with a margin call from your broker.
The professionals whom you are following make their money the same way the mirror trade platforms do, by getting you to make trades.
In the end it doesn’t matter to them if their account is losing a few pips here and there if they are getting plenty of followers.
Do Your Research
The internet makes it easy for marketers and black hat SEO’s to set up fake mirror trading websites.
It is very important to fully research any new platform you are looking at joining as well as any traders you wish to follow.
Education, Eduction and Education
Taking the time to learn all you can it will mean the difference between giving your money away and having an enjoyable, and hopefully profitable, forex trading experience.
Even if you are using one of my recommended platforms you still need to research how the platform works and how to pick a good pro for you to mirror trade.