Essentially, copy trading is what it sounds like. You select a professional trader to imitate and then imitate their trading behavior. Suppose a trader you follow purchases 100 shares of a particular stock. Thus, you would also purchase the share capital of that stock. You would do the same if they allocated 5% of their investment to a particular stock category. Some platforms allow you to just copy trade of experienced traders and earn.
The secret is selecting a broker to follow whose investment philosophy and objectives coincide with your own. For instance, you might imitate someone with a conservative trading inclination if you invest conservatively. Similarly, you shouldn’t mimic a value investor’s trading behavior if you’re a growth investor. You can engage in copy trading on your own or on a copy trading platform.
With the latter, you can pick a trading activity to imitate. It makes investments for you in the interim. You don’t have to do much because trades are automated. You can still pick which investor to follow, though. Ensure your trading account has adequate funds to handle transaction activities.
The benefits of copy trading
By using copy trading, you can benefit from the expertise and experience of others in the field of investing. You don’t need to examine stock market movements or patterns to choose which stocks to buy, sell, or hold. You can copy a successful investor. Let’s say you chose a person whose portfolio consistently produces strong returns. Therefore, you should be able to replicate them if you copy them. If you are interested in copy traders on eToro follow traders union articles.
Most copy trading is passive
You’re delegating the difficult task of selecting investments to another else. You don’t need to spend hours studying the market to make money from your portfolio. Given that the professional trader is in charge of making investment selections, diversification and risk management are also handled.
There are a few factors to take into account when selecting an investor to imitate:
The duration of their trading.
Investment history.
Amount of vacant positions.
Typical investment holding period
She preferred investing categories.
Additionally, consider your goals for your portfolio. For instance, you may imitate someone who concentrates on FOREX, commodities, or hedge funds if you want to make more alternative investments.
On the other side, you might gravitate toward a professional investor who favors an index strategy if your objective is to mirror the performance of the market rather than beat it.
Cons of Copy Trading
The case for copy trading can be made. It might not be appropriate for all investors, though. Before using this method, a few crucial points must be considered.
First, which investor’s actions you follow will determine your success. When it comes to determining when to purchase, sell, or where invest, no investor is perfect. Consequently, there is some risk associated with copy trading. You are aiming for the best returns possible from the pro trader technique. However, there are no assurances.
You’ll need to do some study on traders at this point. Find out more about their processes to see if they complement your objectives. Picking a trader at random could prove unsuccessful if their approach diverges significantly from your approach to managing your portfolio. The copy traders on eToro is very simple by just clicking the copy button.
Copy trading could also be costly if you pay commissions for numerous trades. You may also pay management or administrative fees to a copy trading platform if it manages your portfolio on your behalf. If keeping fees down is essential to you, thoroughly weigh the costs before trading.
Mirror Trading: An Alternative to Copy Trading
While mirror and copy trading are comparable, they are not the same. It might be described as “copy trading lite. “With this strategy, you mimic an investor’s entire investment approach rather than copying their trade-for-trade actions. So let’s pretend you want to invest for value. In that instance, you might decide to adopt Warren Buffett’s approach to investing. You might not always opt to purchase every investment he makes or advises. However, you would base your investment choices on the same ideas that he does.
You can still gain from another investor’s experience and knowledge by using mirror trading. You might not, however, own the same investments that they do. Instead, you apply to your portfolio a method that has worked well for them. I’m hoping you’ll have a similar level of success.