A guide to copy trading

Did you know that 1 in 3 investors find the traditional stock market trading strategy overly complicated? And would, in fact, prefer to follow other traders. Well, welcome to copy trading.

As the name suggests, copy trading is all about directly copying the positions taken by another trader. Simply decide how much you want to invest and copy whatever they do in real-time. So, when the trader enters a position, your account will automatically take that position. You have no inputs on these trades, and your returns are identical to those of the chosen trader.

Copy trading is one of the easiest trading strategies in the stock market, requiring the investor to have no real advanced knowledge of the financial market.

So, let's learn what is copy trading all about.

The Story of copy trading

Well, we don't have too far back; copy trading began in 2005 when traders began using specific algorithms which were developed through automated trading. Soon, brokers recognized its potential of having systems interlinked for a trader to copy automatically.

No more had traders needed to monitor email signals, come up with specific strategies or even do a lot of research. And with this, trading platforms gave traders access to their personal trading accounts, where investors could make money based on the platform trader's expertise.

How does copy trading work?

Copy trading is automated trading made easy. So here are five steps that make it easy.

Step 1

Select a trader according to your goal and follow: Decide what is important to you, whether it is their number of followers, their history of taking risks, or even what kind of assets they have traded on in the past. You can even choose a blend of these. The decision is yours to make as to what is relevant to you.

Step 2

Decide your investment amount: Decide on the amount you want to invest. Then, take a balanced approach on asset allocation and decide how much you want to give to each chosen trader.

Step 3

Replicate your command: Whoever is your trading choice, the copy trading platform will automatically copy the trader's positions in your account.

Step 4

Add more funds: So, if your trader's performance or plans to diversify your copy trading portfolio with different traders, you can add more funds to your account.

Benefits of copy trading

Access to similar-minded traders: You can find traders with a similar investment goal and trading style you hope to emulate. You can also spread your risk across your copy trading portfolio, ensuring you can ride the market's ups and downs and trade over the long term.

Upskill your trading knowledge: By following the trading activity of advanced and experienced traders, you learn from watching their trading patterns and replicate their trading success.

Diversification: As there are a variety of trade strategies to pick from, you can allocate assets across different providers and varied assets to diversify your portfolio. This will help you offset any losses if a particular trader performs poorly.

Risks of copy trading

Well, it is obvious what's the main risk of copy trading as you are relying on another trader's research and expertise. Here are some more risks you should keep in mind.

Finding the right copy trading platform

Determining if the trader is legitimate

Making sure that you monitor your losses

Before you start investing, it is vital to have a holistic financial viewpoint. We hope, through this piece, you have better understood copy trading and if it is right for you.