Copy trading is a new and exciting way of getting exposure to the financial markets without having to give up too much of your own time. It involves taking the trading signals from other traders and applying them to funds you hold at a broker. You remain in control of the relationship, and selection and cancellation of relationships are down to you.
In this article, we’ll explore the following:
If you’re looking to involve someone else in the management of your own money, it’s probably prudent to have a refresher on what copy trading is — and isn’t.
Making a profit from trading the markets can be hard and time-consuming. Not only is there trade management to think about, but effective strategies need to be carefully researched and implemented. Prices are constantly flying around, taking your P&L on a roller-coaster ride.
The principle behind copy trading is that those who have the time and skill to master the markets exchange their trading signals for a fee. This means traders with cash they want to make a return on can set up a broker account and have those signals applied to their account.
If the lead trader makes a profit, then the copy trader does as well, and vice versa.
This, to some extent, looks like old fashioned fund management — whereby investors place funds in an account and rely on the fund manager to make a return.
However, copy trading reflects how modern technologies have revolutionised the investment landscape. With copy trading, you use an online platform to locate and use a third party to help you invest.
Copy trading provides you with:
There are two ways to approach this question. The first is in terms of performance and the second is in terms of time-management. It’s important to be realistic about both.
In the same way that lead traders take some of the hard work out of trading, we’ve done the same thing in terms of selecting a broker. Our team of experts have analysed the copy trading broker sector and have come up with some names you might want to add to your shortlist.
It’s also worth noting that some will allow you to try copy trading in free demo accounts. These allow you to practise using virtual funds. This will provide you have a risk-free way of finding out if copy trading might be for you.
It’s also worth trying out the demo accounts of different brokers. Each has a different range of lead traders to choose from and the functionality of the platforms also varies. The below list is an offering of three well-regarded brokers who each take a slightly different approach to the situation.
Making a good choice in terms of broker and lead trader will impact your cash balance. If you make an analogy with online dating, you would be pretty fortunate if the first person you met on a dating site ended up being marriage material.
This broker has been the market leader in the copy trading sector for many years and continues to improve. The firm now has a staggering 13 million users, which is a sure sign that it is doing something right. In 2020 it recorded a 420% increase in new account registrations than from the same time in 2019.
The popularity of eToro also offers a degree of comfort to those who sign up with that platform. For one thing, a successful broker is less likely to go bust. In addition, eToro now has a reputation that it wants to maintain. There is also the possibility that clients can benefit from a trickle-down effect in terms of improved T&Cs. The advantages of eToro include:
*67% of retail CFD accounts lose money
Pepperstone has a strong reputation for client care. Its customer service team are holders of a host of industry awards and the broker takes a very responsible approach towards regulatory compliance.
There aren’t as many markets on offer as at eToro, but an attractive feature of Pepperstone is that it offers its clients a choice of copy trader platforms. Whereas eToro has developed its own in-house trading platform, Pepperstone has enlisted the services of third-party providers — both of which offer copy trading services.
This is a slightly left-field option, but one that puts the other choices into context. Trade360 relies on its clients to manually trade. It introduced the concept of ‘Crowd Trading’. Trade360’s proprietary trading platform ‘listens’ to the market and identifies price trends.
The tech-heavy platform uses computer models to analyse who is buying or selling what, and flags that up to traders. Trade360 highlights the grey area between social trading and copy trading, but is one that is definitely worth getting a better understanding of.
Involving a third party in your investment objectives comes with some inherent risks. Applying common sense can help you avoid potential pitfalls.
Copy trading is increasingly popular because it offers a degree of control but can be less time-intensive than self-trading.
With global interest rates at record low levels, many are looking for a return on their capital but don’t want to give up their day-job. For them, copy trading could be the answer and trying it out in a demo account is a logical first step.
It’s not risk-free, but accepting that someone might be a better trader than you is a valuable lesson for beginners to learn. You might even find yourself picking up ideas from other traders, or, given time, even becoming a lead trader yourself.
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