Copy trading is a way of choosing trades and trading strategies used by more experienced traders. Using this approach, investors may almost instantly execute the trades made by experienced and profitable Forex traders in their own accounts. Initially primarily offered to institutional clients, mirror trading has subsequently been made accessible to ordinary investors via a variety of channels.
The largest copy trading platform is eToro but other trading platforms have also introduced copytrading features.
Investors may not make trading decisions based on emotion thanks to its automated nature. In order to research the history and specifics of different trading techniques, copy traders in the Forex markets frequently utilize a brokerage's trading platform (software like MetaTrader version 4 or 5).
The trader selects an algorithmic trading strategy from the available possibilities depending on their investing objectives, risk tolerance, available cash, and preferred assets to invest in after investigating formance features. For instance, a trader with a low risk tolerance may decide to copy a technique with a low maximum drawdown. Using automated software that runs around-the-clock, strategy developers repeat their trades in the accounts of mirror traders in an effort to replicate comparable results.
Making trading decisions is no longer stressful since copy trading decides when a deal is opened, closed, or altered. This is especially beneficial for novice investors who may at first find the currency market intimidating. An investor may easily monitor the formance of their mirror trading account at the end of each week and decide whether they want to continue utilizing the method without having to worry about the market's daily volatility.
When offering copy trading, brokers often check, verify, and evaluate the traders outcomes and the techniques and trading data they upload to their platform, which aids in weeding out less succesful traders. For instance, a broker can demand that a new strategy have a 12-month profitable track record and a certain maximum drawdown limit before accepting a trader that can be copied on their platform. Investors should inquire about the methods used to verify a strategy's performance when choosing a broker that provides copy trading to be sure it has gone through extensive testing.
Only specific market circumstances may be favorable for some copy trading tactics. For instance, a strategy could perform well in markets that are trending but poorly in markets that are rangebound. To guarantee a strategy's resilience, investors should evaluate the results in multiple market circumstances.
Although it is simple to tell whether a copy trading account is making money, it is sometimes more challenging to ascertain what risks were made to generate that money. For instance, a strategy that has returned 300% over the previous 12 months may appear fantastic at first, but a closer examination at the strategy may reveal that the investor would have had to experience an 80% loss on their money to reach that outcome.