Building a balanced and successful stock portfolio is a lot more than just buying stocks... It includes research, rebalancing, risk management, and taking profits at the right time.
Considering the difficulty and how much time it takes to build a stock portfolio, a new way of investment has become popular, which is called 'Copy Trading.' As the name implies, this investment method involves following other successful traders by copying all the trades they make. This process is done automatically through automated platforms and usually comes with a fee.
How Does Copy Trading Work?
The steps involved in copy trading are given below:
Join a copy trading platform and fund the account.
Find a good trader you wish to copy.
Setup your risk and other settings.
Copy the trader.
That's about it... The system automatically opens and closes any trade on your account by mimicking the trading activity of the main account you followed. In return, a small amount of fee is charged for allowing you to copy the trades of a successful trader. So, in short, it is a win-win situation for both parties!
Since copy trading is all about copying trades of a successful trader, it becomes a lot more important to only choose a trader that matches your risk appetite and has a history of consistent returns.
Some of the factors that should be considered when choosing a copy trading account include:
The trader must be active for at least 1-2 years.
He must have a history of consistent and stable returns.
He must not have a high-risk trading strategy.
He must be trading in the instruments that interest you or suit your trading style.
He must be open about his trading style.
He must not keep the losing positions open for a long period of time (months or years).
Using these factors, you can easily find a good candidate for copy trading and make money successfully!