What You Should Know About Copy Trading Before You Start

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Copy trading is an effective strategy to start trading in different financial markets. It’s why many beginners are choosing it as opposed to coming up with their own trading strategies. In fact, there are plenty of ways to attempt copy trading as well. You can automatically copy an investor’s trades or get notifications of their trades and copy them manually based on the ones you prefer. If you’re looking to start copy trading, here’s what you should know about the lucrative method, its benefits, and how it’s different from other forms of trading.

What is Copy Trading?

In copy trading, you take up the same positions as the investor you copy. Although you won’t be able to look at their current strategy, you can follow their trades. The method started almost two decades ago when early trading brokers started offering automated trading. As of late, the popularity of copy trading has skyrocketed as more and more platforms started offering it.

Compared to regular trading, this strategy doesn’t require you to conduct in-depth research into market conditions. In fact, the only research you’ll have to do is regarding the investor you’ll be copying. While there are certain parameters to follow when choosing an investor to follow, a Copy Trading Critic would have better knowledge about it.

In most cases, however, a platform will filter through different experienced investors, so it’s easy to find one that aligns with your risk tolerance and trading style.

Potential Benefits of Copy Trading

According to investors, there are numerous benefits involved in copy trading. Aside from the obvious fact that you don’t need to come up with your own trading strategy, there are a bunch of other perks as well. Let’s have a look at them.

  • The Process is Automatic: The biggest advantage of copying other investors’ trades is that it automates the trading process for you. So whenever the investor you’recopying makes a trade, your account will automatically take up a similar position. The only effort you have to make is to find a suitable trader that you can follow.
  • You Can Change Parameters: Even though the process is automated, you can still change the parameters of your trading account. Let’s say that your account has the same position as the trader you’re copying. Even then, you can choose how much of your capital will go towards that trade. And if you’re more risk-averse than the trader you’re following, you can limit how much risk you take per trade so that you stay within your limits.
  • Easily Find Suitable Investors: Another major advantage is that you won’t have a hard time finding traders. If you head over to a copy trading platform and make an account, you’ll find that it asks you about various trading preferences. Then, based on these metrics, it provides a range of investors who have similar trading priorities as you.

Is It The Same Thing as Mirror Trading?

While copy trading evolved from mirror trading, they’re not the same thing. In mirror trading, you copy a specific trading strategy, which could be designed by many traders, via automated algorithms. In copy trading, on the other hand, you make the same trades as an individual trader, and instead of copying their strategy, you follow individual trades.
Of course, there are some similarities between the two. Both of them are fully automated, so you don’t have to make decisions on your own and let the copy trading brokers do all the work. Similarly, both methods can diversify your portfolio based on the market inputs they get.

Bottom Line

Overall, copy trading is an effective method for beginners who want to enter different financial markets without having to do a lot of research. There are many benefits of copy trading, such as the fact that it’s automated, diversifies your portfolio, and allows you to choose the right investor to copy. It’s somewhat similar to mirror trading, but the only difference is that it allows you to copy individual trades rather than an entire strategy.

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