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?
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 much money. With the increasing number of new traders in the market, many brokers try to be more beginner-friendly by offering this feature. But even so, is it true that copy trading is more profitable than other trading strategies out there? We'll find out the answer in this article.
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 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 you will get from their performances.
This feature is helpful for beginners because by copying the open positions from more experienced traders, rookies can learn different strategies 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.
Is Copy Trading Profitable?
The answer to that question depends on whose trade you copy. When you copy trades, you trust your money for an investment that uses someone else's strategy. Therefore, choosing the right broker 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. Considering the instruments they trade and whether their system benefits you would be best. Also, pay attention if the trader's really capable of making their trades.
Another broker that offers copy trading platforms is Pepperstone. Platforms like Myfxbook, MetaTrader Signals, and DupliTrade seamlessly integrate with Pepperstone accounts, allowing its clients to engage in social trading.
FP Markets is also a good example of a broker with copy trading options. This broker provides good social trading platforms and Myfxbook Autotrade as well.
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 indicate that they don't care or can't answer because they don't know what they're doing. Check the trader's profile thoroughly before you decide to copy their trades.
In addition to becoming part of a vibrant community, you also gain access to a wide range of assets such as stocks and cryptocurrencies, all conveniently available on a single platform.
A unique feature offered by eToro is the ability to easily replicate the trading strategies of Popular Investors in the cryptocurrency space. With just a few clicks, users can automatically mirror the investment decisions of these successful traders, eliminating the need to construct portfolios or adjust fund allocations manually. This feature simplifies the investment process and allows users to benefit from the expertise of experienced traders in the crypto market.
How Does Copy Trading Work?
After you have 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 is multiplied by the percentage of your chosen trader's profit or loss, which is the estimated result of your copy trade.
Based on the same calculation method, if you target a $1,000 monthly profit by copying a trader, you should invest at least $20,000. At this point, that amount might sound 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.
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 quickly and with minimum effort. It is not a shortcut to be instantly rich only by copying other traders.
Like any other trading strategy, copy trading also has flaws and cannot guarantee that every trade will succeed. 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 careful 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 wish to educate yourself on trading before building your strategy and trading independently, copy trading is an excellent choice and worth trying. For beginners, trying the demo account before depositing funds in the real account is necessary.
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.