Getting your head around copy trading, all it entails, and choosing the ideal copy trading software can sometimes be challenging.
Ultimate Guide to Copy Trading
In this article, we break down what copy trading entails, choosing the ideal copy trading platform. And the benefits of copy trading. We also discuss how to select the right trader to copy. Let’s discuss.
What Is Copy Trading, and How Does It Work
To begin with, copy trading, as the name suggests, is simply directly coping with the positions of other traders.
In this trading strategy, you earn on autopilot!
That is to say that as a copy trader, you will simply be relying on your preferred trader who is actively involved in the financial investment sector.
How it Works
When looking to start copy trading, you need to choose a trader who matches your exact goals. You can assess this using the tools offered by varying platforms to filter the available traders. Think about what matters to you, for instance, their number of followers, profitability, ROI, risk level, and so on.
Then, you need to decide on the amount you want to invest. And how you ought to share it among varying managers. Be careful not to put all your eggs in one basket. If you have selected more than one person to copy, ensure to choose how much to allocate each.
Your preferred platform will then replicate your chosen trader’s position in your trading account. You may choose to increase your investment if you like how the trader is fairing. Or, you may decide to reduce your exposure to a single trader. And keep your portfolio as diversified as possible by not investing a lot in a single trader.
One way to diversify your portfolio is by looking for copy traders who trade on varying financial instruments. For instance, you could copy a commodity trader or a forex trader. You could also consider copying traders who employ varying time frames. Settling for active traders is advised, rather than those who are inactive.
The best part is, you can choose to replace all your traders at any time, only that you will need a different investment account for others you decide to follow.
How Do You Choose the Ideal Copy Trading Platforms
Depending on your preferred broker, copy trading can get offered through different copy trading software. The best ones include:
e-Toro is one of the best copy trading and social platforms to consider. It is ideal for beginners since everything is straightforward. Once you have opened your account, you get access to thousands of investors that have signed up in that particular program. You have the option of narrowing your search results using a filter system. You can effortlessly deposit your funds using a credit or debit card. Or use e-wallets such as Neteller, Skrill, and PayPal.
- You can trade cryptocurrency, forex, and commodities
- Regulated by the CySEC, FCA, and ASIC
- Registered with FINRA
- You can purchase stocks without paying commissions
- Deposit of funds can get made through using a debit/credit card, bank account, or e-wallet
- You can copy the trades of other stock trading gurus
Just like e-Toro, ZuluTrade is also best suited for newbies. That is because it is easy to navigate around the platform. It only takes a few minutes to open an account, make deposits and begin copy trading.
The platform has tens of thousands of investors, meaning that you have plenty of choices. The downside of ZuluTrade is, it is not unregulated. That means that you will have to link your account to an online broker such as AvaTrade, which supports ZuluTrade.
- Commission-free platform
- Offers educational materials
- Wide range of tradable instruments
- Islamic trading account
3. Meta Trader 4 (through Libertex)
Meta Trader 4 is one of the most common third-party trading platforms. It comes packed with technical indicators, advanced tools. And pricing charts. That makes it a preferred choice for pro traders. That is because there is zero spread CFD trading, and the commissions are highly competitive.
4. Meta Trader 5
The platform is ideal for the forex and exchange markets. The provider uses the MQL5 language to trade on your behalf. The platform allows you to open up to one hundred stock charts or currencies at a time and allows for a detailed analysis of minor price movements.
- Easy to navigate through the platform
- A comprehensive suite of analytical tools
- The breadth of asset classes
- Provision of an economic calendar as part of the platform
What are the Benefits of Copy Trading
a) Ideal for Beginners
One of the biggest perks of copy trading is the convenience of someone else doing the work. That means that you don’t have to be a copy trader pro to take part. It is also ideal for traders who have ample time to analyze trading or fully commit to it.
b) Authorized Practice
Copy trading is generally regulated, acceptable, and recognized by authorities such as MiFID, FCA, CySEC, and ESMA. A licensed broker ensures that your investments get protected at all times. And that you don’t fall prey to the hands of scammers.
c) Demo Accounts
Some brokers offer demo accounts. And this allows new traders to browse the platforms first before they can fully commit. These accounts are risk-free, free of charge, and provide access to essential research tools.
Since there many trade strategies, you can choose to allocate your portfolio to many providers across varying assets. Through this, you spread risks associated with individual decisions. And may offset losses if one of the investors performs poorly. That lets you make money in several types of market environments.
How to Choose a Trader to Copy
There are many copy trading brokers in the market, offering both third-party and proprietary copy trading platforms. But, how do you choose the best?
The ideal trader should show consistency in their results. One of the ways to identify this is to assess their historical performance graph. And whether it is increasing or not doing too well. You want to copy a trader who delivers considerable and consistent gains.
2. Proven track record
When choosing a trader to copy, you want to consider one with a proven track record. Check their performance over the past year, and see if they have been making any progress. Always choose a trader who has been in this for a long time. That will help you to assess them in different market times.
3. Number of followers
Just like social media, traders with many followers could be an indication that they are doing well. Hence their many followers. People will generally follow traders who are winning and getting the most out of their investments.
You also must ensure that the traders trade with real money. That will ensure that you don’t fall prey to the hands of scammers. And seek out these followers for advice on the best trading strategies.
When choosing a trader, you want to consider one with a real account and uses their own money as an investment. That is because they will be less likely to risk losing their hard-earned money. And will do their best to get the most out of trading. That indicates that they are confident with their trading skills. And don’t mind risking investing to reap the benefits of forex trading.
Also, confirm that the negative month in their performance chart is intentional. And not a mistake.
5. Risk level
Copy-trading comes with its own set of risks. And that is why you need to assess the provider’s risk level. Do not work with a trader with no stop levels since this equates to potential risk at unlimited levels.