Copy trading is one of the most popular trading strategies for novice traders. But apart from being simple and quick, how profitable is copy trading?
Back in the days, access to the financial market was still limited as technology hasn't fully developed yet. The popularity of trading then risen up significantly in the modern days, where it makes sense to trade from literally anytime and anywhere, including from the comfort of your home.
Supported by faster internet and sophisticated technology, online trading can be executed instantly and more companies started to compete with each other to create the best trading conditions for their customers by making it more accessible and affordable. As a result, many people are now even more interested in participating in the market and starting their career as online traders.
One of the best ways to trade for beginners is copy trading. It is relatively easy, doesn't take much time, and doesn't require a ton of money. With the increasing number of new traders in the market, many brokers are trying to be more beginner-friendly by offering this feature in their services. But even so, is it true that copy trading really that profitable compared to other trading strategies out there? We'll find out the answer in this article.
See Also: Top Forex Brokers For Copy Trading
A Way to Trade and Learn
As the name suggests, copy trading essentially means picking a certain position opened by a trader of choice and automatically copy the exact strategy to your own portfolio. By using a copy trading platform, you basically copy other traders' performances, whether to copy open trades from that person or start from only new trades that they make.
In other words, you are investing in the growth of a particular trader, so you would want to choose the best traders with the most profitable strategy possible. You can also determine how much you want to invest in a certain trader, which will proportionally determine the gains or losses that you will get from their performances.
This feature is considered helpful for beginners because by copying the open positions from more experienced traders, rookies can learn different strategies that they use along with its efficiency and winning rate. It is as simple as picking a trader, putting down your money, and letting the platform copy the trades with your cash.
Later on, you can judge for yourself which strategy works best for certain instruments. Some of the best copy trading platforms feature top traders from all around the globe, making it easier to diversify your portfolio. Also, you can minimize the risk of losing by copying several traders at once so it is possible for you to not depend only on one investment. If one investment turns to be against the price direction and is accumulating losses, you might still win from the other investments.
Is Copy Trading Really Profitable?
The answer to that question depends on whose trade you copy. When you copy trades, you basically trust your money for an investment that uses someone else's strategy. Therefore, choosing the right trader is the key to successful copy trades.
Now, remember that each person has different strategies and thus makes different decisions with their trades. So the winning rates are never the same for each trader; one trader might gain a 60% profit a year, another 100%, and another might even make a 30% loss over the same period. Because we typically can't see the actual amount of money that the trader is investing in a certain position, those percentages matter a lot so pay attention to that when you open the profile of each expert trader.
Furthermore, because there are thousands of traders to choose from, it is important to be able to sort out and narrow the options. It would be best if you considered the instruments that they trade and whether their system benefits you. Also, pay attention if the trader's really capable of making their trades.
A copy trading platform like eToro allows social trading so that traders can interact and talk with each other. This way, you can ask questions to the experts and join in various discussions on the platform. Some traders may not respond to your questions, which can be a sign that they don't care or can't answer because they don't know what they're doing. Make sure to check the trader's profile thoroughly before you decide to copy their trades.
After you figured out how to find trustworthy experts, it is time to learn the smart way of copy trading. For example, trader A gains 10% profit over the next month and you want to copy his trade. If you invest $200 to copy his trade, then in the next month you will get 10% of your investment, which equals $20. It's simple math, in which the amount of money you invest multiplies by the percentage of your chosen trader's profit or loss, and that is the estimated result of your copy trade.
Based on the same calculation method, if your target is to get $1,000 profit a month by copying a trader, then you should invest at least $20,000. At this point, that amount might sound really expensive, especially for beginners. There are two alternatives that you can pick: find other traders who can make more than 10% per month so you can still get $1,000 profit each month with lesser capital investment, or you can lower your profit expectations and adjust it with the amount of money that you can afford to invest.
Nonetheless, it is important to note that past performance does not always reflect the future win rate. Just like the financial market that is full of uncertainties, expert traders' profitability is not 100% guaranteed to always perform as expected no matter how great they are. What makes them survive in the unforgiving market is the way they manage their risks and their mental skills when facing market volatilities.
As a result, it's best to also pay attention to consistency. Find out whether a trader's profitability is steady from time to time. If it is evident that their profit/loss chart tends to fluctuate wildly from positive to negative or the other way, then it is safe to conclude that their overall performance is not quite reliable.
Conclusion
From the explanation above, we can conclude that copy trading is indeed a great way of trading for beginners. It is simple and doesn't take much time to execute. However, it is not a magical way to earn loads of cash in a short period and with minimum effort. It is not a shortcut to be instantly rich only by copying other traders.
Just like any other trading strategy, copy trading also has flaws and cannot guarantee that every trade would be successful. The main purpose of this method is to learn from experts while simultaneously making money along the way. Still, always try to remember that you can make money with copy trading only after you make sure of these matters:
- Be ive when choosing a trader to follow.
- Adjust your profit expectancy with the profitability of the trader.
- Always mind the consistency of the trader's performance.
If you want to start, joining eToro can be a good solution as the platform basically introduces social and copy trading in the industry. They also have accomplished trader's monitoring tools so you can thoroughly review their past performance as well as their portfolio structures and the way their strategies work.
You can also join the community, interact with other traders, analyze various strategies, and better understand how to handle different market conditions. If you really wish to educate yourself on trading before building your own strategy and trade independently, copy trading is an excellent choice and definitely worth trying. For beginners, trying the demo account is a must before depositing funds in the real account.
🌐 WebsiteeToro 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.
2 Comments
Gerald Gildea
Dec 29 2021
I need to know how to select the best trader to copy.
Pique
Dec 18 2022