Top 7 Things You Should
Know About Copy Trading
Copy trading is gaining traction among retail investors. It is a combination of social networking, forex trading and portfolio management that some have likened to trading mutual funds.
Members of a network can choose to follow one or more other traders based on things like number of winning trades, draw downs and profit percentages.
If the trader you choose does well, you do well, if not then you can stop following them and move on to another trader.
The advantages are numerous and profits are seemingly easy but there are a few things you need to know before you get started.
The Top 7 Are!
1 - You need to know about forex trading.
I know copy trading is a way to avoid the need to know how to trade successfully but I still recommend that you understand how it works.
Forex and currency exchange is a complex web of central bank policy, demand and expectations.
The markets are driven by a wide variety of factors and can act with sharp and sudden moves.
These moves are measured and analyzed by a wider variety of technical indicators in order to predict future moves.
These moves are captured by trading real money on highly speculative positions such as currency futures, spot forex and CFD's.
These financial products are highly leveraged and can easily wipe out the largest account, or provide unlimited returns.
2 - Not all copy trading platforms are the same.
They don't offer the same features, they don't support the same brokers and they most certainly do not all have the ability to execute auto-trades.
Don't just sign up with the first web site that piques your interest. Be sure to dig deep into what the platform offers.
The best websites will have a forum where traders can connect with each other as well as leader boards or other means of checking out potential traders to follow.
Some of the platforms are part of a larger forex brokerage but most are third party businesses and will require you to open an account with a support broker.
3 - How do copy trading platforms make their money.
It’s important to understand since it is usually free for you to join.
They have partnerships with supported brokers. Every time the website generates a trade with one of the supported brokers it earns money.
The copy trading platforms attract successful traders by allowing them to share in the profits they generate.
They can also attract scammers and other unscrupulous types who are seeking to generate trades.
4 - Know who you are following.
As a copy trading leader it can attracts a lot of people who want to build up a large following, quickly.
And because it’s possible for traders to build a large following and make a lot of money.
The internet is all about SEO and lead generation, often traders are nothing more than a good marketing scheme.
Take some time to research your trader, find out who they are and how long they have been trading.
At the same time you should ask around on the forums for some reviews and even go as far as looking for information not found on the platform itself.
Once you are satisfied with what you hear you can move ahead with your trading plans.
5 - Understand why and how your traders are making their decisions.
Not all traders trade the same.
Does your trader use fundamental analysis, technical analysis and of those two forms what types of indicators and gauges trigger the trading decisions.
Some traders trade on gut feeling, some use precisely defined entry and exit rules.
The best traders use a strict code that defines their trading, I suggest picking those traders over someone who places trades erratically.
After you have a short list of good traders to pick from choose more than one for a balanced copy trading portfolio.
Alway ask questions of your chosen traders.
6 - Read between the lines.
Often times traders can build up huge accounts with attractive statistics but still cause you to lose money.
When you are checking out your traders you have to read between the lines.
The statistics listed on the profile page or leader board are not always telling you what you think.
I do not want to imply that any foul play is going on.
What I mean is that it is possible for a trade leader to allow bad trades to linger in their account in order to fool the analysis algorithms.
The best platforms have some checks in place to help stop this kind of activity.
7 - You can't just set it and forget it.
Copy trading is just as active as any other form of trading, the difference is you are trading traders and not the underlying assets.
Sometimes a trader you are following will have a bad streak or for some reason change strategy or even stop trading as actively as you would like.
Whatever the reason it is necessary to keep checking your account on at least a weekly basis if not every day.
You're letting other people trade your money, you can't just let them do it without keeping a close eye on what they are doing.
Tips For Successful Copy Trading
My best tip for a successful copy trading career is to get involved, learn as much as you can and stay active in your account.
Copy trading can be a highly rewarding career, in more ways than one.
Of course the goal is to make money and eventually retire from the rat race but between then and now the opportunities for learning, building community and having a good time participating in the markets is too good to pass up.
So, to have the best and most enjoyable copy trading experience you need to learn about the forex markets, stay in touch with fundamental changes to the markets (ie central bank meetings), research each trader you want to follow and stay active in your account.
Trading foreign exchange carries a high level of risk, and may not be suitable for all investors. The high degree of leverage available can magnify profits and as well as loses. You can lose more than your initial deposit. Before trading, please carefully consider the risks and inherent costs and seek independent advice as required.