Copy trading has been one of the most popular trading strategies in the market for years. But is it still popular in 2022?
Every trader enters the market in hope to generate profit. Many of them might think that trading is an easy way to become a millionaire, but this is actually quite far from the truth. In fact, most traders end up losing their money at some point in their careers. It's even quite common for traders, especially beginners, to give up and quit the market after losing a lot of money from their trades.
Since trading is so difficult to master, many traders like to copy expert traders and use their strategy to gain income. This is what's often referred to as copy trading. By using special platforms for copy trading, novice traders can just invest some money in a professional trader and leave the rest to the expert's strategy. It's often considered a great way to earn passive income at a pretty affordable price.
Copy trading has been one of the most popular trading strategies in the market, particularly in the early 2010s when the concept was first popularized by several big platforms like eToro and ZuluTrade. However, many experts believe that the appeal of copy trading is slowly declining. Is the notion true?
How Copy Trading Works
The concept of copy trading has been around for many years. Before it was formally made into a broker feature, copy trading was done through internet forums where expert traders shared their experience and trading strategies with other traders. This allowed rookies to copy the strategy and use it to diversify across different assets or trade with instruments that they were not familiar with.
Today, copy trading has become a part of a broker's feature. Traders can just sign up with a broker and copy an expert trader's strategy to earn passive income. eToro alone has over 2,000 expert traders whose portfolios can be copied, offering an opportunity for traders to make money without having to figure things out on their own.
The idea is basically to profit from other people's good decisions. You simply need to choose a profitable expert and copy their strategy. Soon, both their wins and losses become yours too, in proportion to the money you invested. You can either choose to do it automatically or manually.
Why is Copy Trading So Popular?
- Easy Access to Global Markets: Copy trading is considered effective to make money with less effort. With the help of copy trading platforms, traders can get exposure to global markets without actually having to overcome the hurdles themselves.
- Time-saving: Compared to manual trading, copy trading is undoubtedly simpler and not time-consuming. Becoming an expert is never easy. It takes time, money, and much dedication. Meanwhile, the process of copying other traders' strategies is actually very quick, so even traders that don't have much time to trade can still make money from the global markets. There's no need to stare at the screen for hours to observe the price movements or read a bunch of strategy books to start making money.
- Education: Copy trading is also a great way to learn trading strategies. You can use your time to observe experts and make money at the same time. Additionally, some copy trading platforms allow you to interact with the experts so you can ask questions and gain new knowledge from their experience.
- Portfolio Diversification: Lastly, copy trading can be used to diversify one's portfolio by investing in several successful traders with varying degrees of risk tolerance and/or instrument choice.
The Risks of Copy Trading
The key to copy trading is to accurately predict which expert trader will be successful with their trades and then copy them. However, it's important to understand that even the best traders can make mistakes. It's just unrealistic even for an experienced trader to keep making profits without a single fail. Therefore, choosing to follow other traders' decisions is certainly very risky. Anything can happen in an instant, and if they lose, you will also lose with them.
According to ZuluTrade, only about 63% of traders profited from copy trading between September 2021 and August 2022. This proves that copy trading is not always successful. So, even though most brokers promote copy trading as a safe way to make money for beginners, it's actually never free of risk.
Another thing to consider is market liquidity. Copy trading can generate a large number of trades that move in the same direction, which may cause a gap in the prices and slippage for traders. Therefore, this strategy can be unprofitable if you don't know the basics of online trading and how the market works.
After copying traders several times, you might realize that the market is imperfect, and ultimately, realize that blindly following someone else isn't necessarily the best way to make profits.
Copy Trading in 2022
Although many people believe that the popularity of copy trading is declining, most copy trading platforms are actually performing very well these days. eToro, for instance, closed the last quarter of 2021 with a net profit of $304 million, which was 85% higher than the previous year. In addition, their net trading income surged by 50%.
eToro established in early 2007, with a mission to make trading accessible to anyone, anywhere, and reduce dependency on traditional financial institutions. The company has head offices in the United Kingdom, Cyprus, USA, and Australia.
eToro (Europe) Ltd operates as a Financial Services Company authorized and regulated by the Cyprus Securities Exchange Commission (CySEC) under license no. #109/10. Meanwhile, eToro (UK) Ltd is authorized and regulated by the Financial Conduct Authority (FCA) under the license FRN 583263.
As for eToro AUS Capital Pty Ltd, the legal standing is acknowledged by the Australian Securities and Investments Commission (ASIC) to provide financial services under Australian Financial Services License 491139.
A broker that belongs to the 4-digit type, eToro offers both short-term options for day traders and long-term options for investors, such as their innovative CopyPortfoliosTM, a fully managed thematic portfolio.
Since 2007, eToro has been at the forefront of the Fintech revolution. The most recent was launched in 2017, which is CopyPortfolios powered by Machine learning Al. Beyond developing CopyPortfolios, the company integrated Microsoft's machine learning technology into Momentum DD.
The new CopyPortfolio investment strategy uses artificial intelligence to find the steadiest traders who are most likely to generate a double-digit return and bundle traders into one fully-managed portfolio. eToro has hundreds of financial assets for trading across several categories including stocks, commodities, crypto assets, currencies, indices, and ETFs. Each asset class has characteristics and can be traded using a variety of investment strategies.
Some positions on eToro involve ownership of underlying assets, such as non-leveraged positions on stocks and cryptos. Employing CFDs will enable a variety of options, such as leveraged trades, short (sell) positions, fractional ownership, and more. For example, traders can invest as little as USD100 in gold, even if a single unit of gold cost USD1,000. Some of eToro's most popular CFD commodities include gold, oil, natural gas, silver, and platinum.
Currencies are traded on eToro only as CFDs. Also, CFDs enable Sell (short) positions and leveraged trade, even for assets that don't offer the option in traditional trading. Some of the popular currencies include EUR/USD, GBP/USD, AUD/USD, USD/JPY, and USD/CAD.
Furthermore, An Exchange-Traded Fund (ETF) is a financial instrument comprising several assets grouped to serve as one tradable fund. After opening an account in eToro, traders can invest as little as USD250 in an ETF that costs USD500. Some of the popular ETFs on eToro include SPY, VXXB, TLT, and HMMJ.
However, eToro also offers additional functions using CFD trading. All leveraged ETF positions in the UK are under FCA regulations. Meanwhile, all CFD positions executed by eToro Australia are under ASIC regulations.
The company has other advantages. In all financial assets that can be traded, eToro does not charge any deposit or trading frees other than spreads.
eToro charges a USD25 fee for withdrawals and the minimum withdrawal amount is USD50. Long (Buy), non-leveraged crypto, stock, and ETF positions are not executed as CFDs and do not incur any fees. eToro does charge overnight or weekend fees for CFDs positions, such as leveraged positions and short (sell) orders.
Fee updates always apply to open positions. Fees are subject to change at any given time and could change daily, without prior notice, depending on market conditions.
As a beginner, trader can use CopyTrading eToro. Different from the features of other brokers, traders can copy the strategies of professional traders without fee or profit-sharing. Therefore, 100% profit is fully owned by traders. For example, while trader A who is copied by trader B, produces a profit of 10% this month, then trader B also gets a profit of 10%.
The company is the world's leading social trading network. Since eToro operates in complete transparency, each trader has valuable information on their eToro profiles, so other traders that are interested to copy their trades can have assistance in creating their best portfolios.
Another feature that is unique to eToro is the personalized, social News Feed. Just like on any social media, traders can post their updates on feed, comment on other's posts, and gradually create a feed that is tailor-fitted to trader's trading and investing interests. On eToro social trading platform, traders will also get notifications when a trader writes a new post and many other important updates.
ZuluTrade, another popular copy trading provider, seems to be doing great as well. Last December, the platform was acquired by the Finvisia Group and now it focuses on business expansion, obtaining regulatory licenses, and adding new features. A German copy trading platform NAGA also ended 2021 with a huge profit. By the end of the year, the company earned €55.3 million in revenue and made another €18 million in the first quarter of 2022. NAGA is now actively gaining more regulatory licenses and improving its crypto services.
Even so, there are still a few concerns regarding copy trading in 2022. One of them is about regulation. Copy trading is now classified as normal trading activity, but the regulators might change the rules at any time. If the authorities decide to change their stance and consider copy trading platforms as unregulated entities, then the future of copy trading might be at stake.
This is why some experts like Charles Qi, the CEO of Stockpick, believe that copy trading providers must stay out of the boundaries of regulated investment management as copy trading won't be economically viable if regulated as investment managers.
Despite all the risks, copy trading remains popular among traders in the market. The high performance of various global copy trading platforms over the years clearly reflects the popularity of the strategy. With many new traders starting to participate in the market, it only makes sense to expect the copy trading industry to grow even bigger in the future.
That being said, copy trading is certainly still relevant in 2022. Almost every big broker is offering copy trading these days, so the strategy is very accessible from anywhere in the world. The most important thing is to not be reckless. Copy trading isn't as instant as most beginners would think. You still need to do proper research to examine the data from trader profiles before deciding who to copy. And even then, there's still no guarantee that the trade will be successful.
In the end, it's always better to learn to trade yourself and have full control over your money. Copy trading may give you profit, but it won't teach you how. Similarly, you can lose money without really knowing what went wrong because you let other traders make decisions on your behalf. So, while copy trading is worth trying, it's still important to understand how to trade properly. Once you're more confident with your skills, you can start using your own strategy and generate your own money. Perhaps at some point, you can even become an expert and let others copy your trades for some extra money.
Nov 2 2022
I have many question that want to ask because I am confused between copy trading, robot trading, and expert advisor
Nov 16 2022
Thanks for asking the question. First I told what is the difference between copy trading, robot trading and expert advisor. Copy trading enables financial market persons to automatically copy positions opened and held by other ed persons On the other hand, robot trading, also known as algorithmic trading or automated trading, is a computer-assisted trading system that allows traders to rely on.User-defined operations such as computers to enter and exit by defined rules and an Expert Advisor (EA) is software that tells you when to trade. You can even program the software to initiate and execute trades for you using your trading criteria.Expert Advisors are often used within MetaTrader 4 or 5 Forex trading platforms. It is clear. Yes, it is safe if you decide to choose copy trading to start trading because manual copy trading is not as risky as it is up to you whether you copy another trader's position or not. However, if you blindly follow their every move without doing your own research, it could possibly be disastrous.
Nov 14 2022
holhandaj jong: Is Expert Advisor still relevant in terms of safety? I know they are integrated with MetaTrader which is supposed to warrant their reliability. But, with a lot of other copy trading platforms nowadays, where do Expert Advisors stand? Is it still at the top?