Have you ever thought of using copy trading services? You have just heard about it? Copy trading is a kind of social trading network that helps you to trade forex.
Copy trading, also known as social trading or mirror trading, is a method of investing or trading in financial markets where individuals can replicate the trades of experienced traders.
That being said, copy trading has some advantages and disadvantages. Some benefits of copy trading are:
- Access to expertise: Opportunity to learn how professional works.
- Saving time: Copy trading can be fully automated, which reduces the time spent on analyzing.
- Customizable: Some platform allows traders to customize the positions according to their needs.
But copy trading also has several disadvantages, which include:
- Expensive cost: Some platforms require a high minimum deposit.
- Results not guaranteed: Even the best professionals can lose sometimes.
- Less decision-making opportunity: Copy trading require very little decision-making from traders; it simply copies another trader's strategy.
To better understand copy trading's pros and cons, check out the explanations below.
Copy Trading Pros
The concept of copy trading has gained popularity in recent years. No wonder there are a lot of brokers that offer copy trading. Some best examples of brokers for copy trading are FP Markets, Admirals, and many more. Not to mentions copy trading also offers the following advantages:
1. Access to Expertise
Copy trading allows novice traders to access the knowledge and expertise of experienced and successful traders. By replicating their trades, individuals can benefit from professionals' strategies and decision-making skills, even if they lack the time, knowledge, or experience to trade effectively.
Copy trading also provides an educational aspect, especially for beginners. By observing and analyzing the trades of successful traders, traders can gain insights into market dynamics, trading strategies, risk management techniques, and other important aspects of trading. This can help them develop their skills and knowledge over time. Making copy trading is one of the best educational features.
Copy trading saves time by eliminating the need for extensive market research, analysis, and monitoring. Instead of spending hours studying charts, financial news, and economic indicators, individuals can rely on the expertise of others and automate the execution of trades.
This is particularly beneficial for individuals with other commitments who cannot dedicate significant time to trading.
By copying trades from different traders with varying trading styles and risk profiles, investors can spread their capital and reduce the potential impact of a single trader's performance. It can reduce the time spent to create the risk management strategy.
Copy trading platforms like eToro and ZuluTrade allow users to customize their trades based on their needs. In addition to directly copying the trades and strategies of signal providers, these platforms allow traders to adjust certain parameters to tailor their copying preferences.
With this customization feature, traders can copy trades at reduced volumes or selectively copy specific trade portions. The degree and extent of copying from a signal provider can often be adjusted according to each trader's preferences. This level of flexibility enables copied trades to align with different risk profiles and account levels.
Copy Trading Cons
While copy trading offers several advantages, it is important to know its potential drawbacks. Here are some cons associated with copy trading:
1. Relatively High Minimum Deposit
In some copy trading platforms, traders need thousands of dollars in the initial balance. There are even traders who require their followers to have around 20,000 USD. It makes sense, as the floating position may eat them before reaching the exact goal if the account balance is not good.
Still, for some people, such an amount is no joke. Those having a large amount of money may be able to afford copy trading, but it is not advisable for those who prefer trading with cent or micro accounts.
As such, using copy trading services may be very rewarding for those who have big funds and don't want to spend time scrutinizing the financial market.
2. Past Performance Is Not Indicative of Future Results
If you track some of the best pros in social trading networks, you will see that their performances fluctuate. There are usually some records on the network where traders can see one's past and current performance, but future results are entirely different.
It might help to find a copy trading platform like HF Markets offers, which allows traders to check the strategy provider's performance. But, not all platform has it.
Someone who has performed spectacularly could experience extreme drawdown in a few days. Someone who stands in the first best place this week could be demoted to the third in the next week and then fall into some obscure number by a month.
They are experienced, but even professional athletes do make mistakes from time to time. Therefore, you ought to frequently monitor your account and make necessary adjustments.
3. Trust Others to Make Trading Decision for You
When copying trades, traders essentially entrust their investment decisions to someone else. This lack of control means traders depend on the expertise and judgment of the signal providers traders choose to copy. If they make poor investment decisions or suffer losses, their portfolio may be negatively affected.
Some people are more comfortable making decisions alone than relying on unknown personages. This is not wrong.
However, deciding by themselves means some traces of emotion will be involved. Emotion intensifies when traders face choices determining their riches, and the culprit has destroyed numerous traders' accounts.
Using copy trading services, trade decisions will occur outside the trader's emotional control.
While copy trading might not be suitable for some traders, some traders will benefit from it. Think carefully before you decide on a course of action. Be aware that although they don't personally make the trade in copy trading, it does not mean the element of risk in online forex trading disappear. Hence, you might need to learn how to choose the right traders to copy.