Copy trading is a type of trading where the trader copies another trader’s actions. During recent years, social networking platforms have been developed that makes it very easy for traders to copy each other. The goal is of course to increase your profits by copying the trade of a successful trader.
One reason why copy trading is popular is that it requires very little time and effort. Instead of doing all the research and analysis your self, and vigilantly watch the market to spot good transaction opportunities, you can set your account to automatically follow the actions of a skilled, knowledgeable and dedicated trader.
Before you decide to start copying a specific trader, be critical and ask yourself if it is the best trader for you to copy.
- Is this trader employing strategies that match with my own investment goals?
- Is the trading style something that I would be comfortable with, or is it so risky that it would give me an ulcer from constant worry?
- Is this trader displaying a long track record of making long-term profits, or is he just the hot new thing on the platform?
- Do I want to follow a trader that is similar to me, or one that is different and complements me? Both have their pros and cons.
- Can I follow this trader completely, or should I do some tweaking of the parameters to get the best out of her trades?
These are just a few of the questions that needs answers before you chose which trader or traders to follow.
But my bankroll is so small – can I copy anyway?
Copying another forex trader doesn’t have to involve make trades of exactly the same size as the one she is doing. You can for instance set your parameters to duplicate each trade using 10% of the original purchase, never make any individual trade that exceeds $100, and never have more than ten positions open simultaneously.
Do I have to copy everything?
No, you don’t have to copy every trade just because you follow a certain trader. Chose a social trading platform that gives you a lot of freedom to tinker with the parameters and create a set-up that suits you. You might for instance notice that a certain trader is doing really great with the EUR/USD currency pair, but fails to make any long-term profits when he branches out to other currency pairs. Set your parameters to copy his EUR/USD trades only and disregard all other currency pairs.
Sometimes it is possible to find traders that are amazingly successful in certain areas (e.g. a certain currency pair) but make major losses in other areas. They can look like really bad traders when you only focus on their average profitability, and many potential followers will disregard them. This is sad, because following such a trader could actually be very profitable for someone who realizes what the strength of this particular trader is and tweaks his own copy-settings accordingly.
Try out with a demo account
A demo account will allow you to copy traders using play-money. You can try out several different set-ups and see how they work out over time, without actually losing any real money. A demo account is also a great way of learning more about all the various features of the forex copy trading platform.
Have followers – be rewarded
Many of the social media platforms that offer forex copy trading will reward you if you become one of the traders that other traders follow. So, even if you aren’t interested in copying someone else, signing up with one of these platforms can still be an interesting option since it could lead to multiple streams of income for you if you attract followers that copy your trading.
It is also worth noting that on many platforms, you can be a follower and have followers at the same time. You can for instance end up in a situation where your tweaking of a certain traders transactions becomes so profitable that other members start to follow you.