Do you want to understand what copy trading is? How it will benefit you? What should you look for in a broker?
This guide brings together all the basics in one easy-to-read article. It will get you up-to-speed with this exciting social phenomenon which really is as simple as it sounds.
The history of copy trading goes back to 2005 when traders used to copy specific algorithms that were developed through automated trading. Brokers recognised the potential of having systems where any linked to that trader could automatically copy their trading account. There was no need to constantly monitor email signals or trading ‘chat’ rooms. We think they were onto something…
Out of this were born Etoro and Zulutrade who allowed traders to connect their personal trading accounts to their platform. Traders no longer had to submit their specific strategies. The popularity of copy trading has since exploded.
You can copy trade across all markets, including: FX, indices, stocks and Commodity markets.
If you want to enter the FX market but are short of time, copy trading allows you to get involved without having to learn advanced technical skills. This can be very time-consuming.
It is very simple to trade in and out of different markets if you want more exposure in one over another. Perhaps you are less familiar with technology stocks but have always wanted to trade Apple or Netflix?
The advantages of copy trading are the reason it has become so popular.
What is the goal?To find traders that have a strong track record and trading style that you want to emulate.
Or you can spread your risk across your portfolio which will enable you to ride the ups and downs in markets so that you can trade over the long-term.
Accessibility
Copy trading offers an interesting and reachable route into trading. Huge advances in social trading and the multiple social trading networks means this is now freely available.
Upskill your own trading knowledge
Copy trading allows you to follow the trading activity of experienced traders, some of whom have years of expertise and know-how. You can learn from watching by replicating their success and developing your own trading.
Diversification
With the huge variety of trade strategies on offer, you can now allocate your portfolio to numerous providers across different assets. By spreading the risks associated with individual decisions, you can offset losses if one trader performs poorly. You could also potentially make money in several types of market environments.
Ask yourself…
Do you want some oil exposure as Saudi Arabia becomes prone to more acts of sabotage? Do you want to take advantage of intraday moves during Jerome Powell’s press conference? Or perhaps you are content with a quieter life, lower volatility, green investing perhaps? You can get whatever exposure you want, on your terms by tapping into a wealth of global expertise.
Free time
You can continue to trade in the markets throughout the day as someone you have chosen is monitoring them and trading. This means you can spend time on your other hobbies!
Market risk
Copy trading, like with any trading in financial markets, involves putting some of your capital at risk. Inevitably, the market risk associated with this means you can lose that capital as the assets your chosen trader has bought and sold may be prove unsuccessful.
Trader Histories
Choosing a long-term reliable trader to copy can be difficult. It is up to you to do your own homework to make sure you understand your chosen traders. Sometimes, results can be too good to be true, or a trader is going through a hot streak which means a drawdown is close by.
Execution risk
As with any financial trading, there is risk involved if the assets being traded are illiquid i.e. how easy is it to exit the positions held. You also need to be aware of other areas like what costs are included in the copy trader’s returns and is the bid/offer spread already included in published returns.
There are some basic terms that you should know before stepping foot into the world of copy trading.
We’ve put together a useful list right here:
Allows you to copy a trader’s actual strategies.
Is the way to control risk and the most important factor is determining success or failure. How much should we assign to each provider and each strategy?
Is the trader who identifies the signals to be followed by the investor or follower/copier.
the pip difference between the order price and the execution price of a trade execution. Due to market volatility or slow internet connection, the order price could change before it reaches the broker for transaction.
allows you to copy transactions made by one or more investors inside a trading network.
the price the trader chooses to close out a live trade in order to limit your losses if the market moves against you. Stop loss levels depend on the trading strategy.
currency ticker symbols are used in the forex market to represent the pair that is being traded. A currency, such as the dollar, is never bought or sold in absolute terms, but always in relation to another.
often means charts which a trader uses to interpret historic price action and behaviour for future direction.
allows you to hedge trading risks by incorporating different trading strategies and assets in a variety of market conditions. This is a key benefit of copy trading.
is the understanding of all news including economic and political to forecast future price movement.
is the fall in equity in a trader’s account, normally from a relative peak to a relative trough. It can be expressed in absolute terms or in terms of percentage.
is the person who follows other traders to utilise their information or directly copy trades from them.
is the graphical representation of the signal provider’s account balance.
TMA Invest is our unique and innovative way to find the most suitable traders to copy.
TMA Invest lets you access to the opportunities of trading without any advanced technical skills.
You retain full control of your money and you only pay a fee to your Strategy Manager when they generate a profit for your Invest account