Nigel has been in the regulated financial services industry for nearly a decade, has previously owned a financial brokerage and has written many times for sites relating to personal finance and trading.
Copy trading is a method used in CFD trading that allows investors to mimic the strategies of other more experienced and successful traders. This method is inspired by social trading on platforms like eToro and affords traders the opportunity to copy trades and adjust them to suit any budget.
In order to understand what is meant by copy trading, you must first understand what is meant by social trading. This trading strategy is, in a sense, a form of social networking for investors. Traders can monitor the trades of popular investors and view the various strategies utilized in order to achieve success. You can also see when trades are made and how much investors are trading. Each social trading platform will reveal different trades and investors can essentially form a social trading community among investors. You can view what others are doing and communicate with them regarding their trades as well as your own. This gives new investors a golden opportunity to learn from the best, gaining further knowledge and understanding of trading strategies – all while developing your own trading style based on what seems to work.
While social trading is very useful to many traders, there are some who simply wish to trade in short term transactions on the CFD markets. For these traders, copy trading is more popular and beneficial, especially when you are not extremely experienced or independently successful in your trades yet.
The method is relatively simple. Once you have opened a trading account with a platform like eToro or Ayondo, you will be able to access the social aspects mentioned above. You will be able to talk to other traders, see which markets they are trading on, how much risk they take and where they are from. As you monitor the various traders, you will learn to recognize which ones meet similar criteria to that of your own trading methods. There is even a search filter where you can stipulate the stipulations you are looking for in another trader to best suit your own trades. You can then monitor their trades, the various actions they make and when they make them. When you find a trader who matches your trading goals, you can – quite literally – copy their every (wise!) move in your own trades.
You choose a budget to work with, assign it to your preferred traders, and from then on their every transaction will be copied in your own dealings. Your budget does not have to match that of your chosen trader, because your chosen platform will copy each trade in proportion to your specified budget. Once you have started your link to the chosen investors transactions, you can sit back and let the platform do the rest of the work for you. If at any time there is a trade that you aren’t comfortable making, you will be able to stop it, as you will be notified before each trade and will be given the option of either confirming or denying its execution. You remain in complete control of your transactions.
While it may seem like you are just capitalizing on other investors’ success, they are benefitting from this method, too. The concept works similarly to a social media account being sponsored. The larger the trader’s social following grows, the higher the monthly incentive will be that they are paid by the platform. So on top of their already successful transactions, you will be granting them extra rewards and gaining rewards for yourself – at no extra cost and without any guilt about copying other traders’ strategies. Everyone wins!
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