When you trade, profits come with time.
Before you can start bagging consistent returns, you’ll go through an extended and dreadful period of learning and losing.
Enters copy trading – a trading style that essentially allows you to copy the trade of a more experienced trader. See this as your shortcut to profit if you’re just new to the market.
However, copy trading is only profitable when done right. Most of the time, traders become too blinded by its benefits to lose money.
Read on this TRU Insight to learn the basics of copy trading, its operations, the things you must consider when looking for one, and the best practices to avoid the pitfalls of copy trading.
What Is Copy Trading?
Copy trading goes as its name suggests – you copy someone’s trade hoping to earn from their exact trading setup.
From the position, asset, stop-loss and take-profit levels, and lot size, you replicate the exact transaction of a more experienced, often professional, trader.
You don’t simply copy anyone’s trade, though. While it’s at the trader’s discretion, the copied trader should be credible and transparent with their trading track record.
Note: A trader who copies trade is called a copying trader, copier, follower, or subscriber. Meanwhile, a trader who provides the trade setup is called the copied trader, master trader, signal provider, or leader.
How Does Copy Trading Work?
Historically, traders did copy trading manually.
It follows the concept of signal trading – wherein the trader received a trading signal, which became the basis for their manual trade execution.
However, today’s technological advancement has made copy trading more sophisticated.
Copy trading exists in almost every brokerage trading platform. This opportunity provides both the copying and copied traders with a more regulated avenue to copy or provide a trade.
For copying traders, they can easily track the record, profitability, and success rate of the signals provided. Additionally, this eliminates the potential manipulation from the broker moderates it.
For copied traders, integrating copy trading into broker platforms presented a wider network of potential clients. The bigger the network is, the more potential clients there are.
Key Factors in Finding the Best Copy Trading Provider
Copy trading solved the problem of every beginner trader ever – the painstakingly extended period of learning to profit.
By allowing you to copy the trades of a more experienced trader, a beginner trader stands a chance of profiting from the complex financial markets.
However, their blind optimism with copy trading brings more harm than good – or losses than profits.
Remember, you never copy the trade of the first provider you’ve seen – you should be able to discern whether the signal was there to help you make a profit or help them hit their quota.
Here are the five key considerations you must remember when you plan to copy trade. Remember, never dive headfirst when you’re in the financial markets.
Check Track Record
The forex market is complex enough to make trading naturally filled with uncertainty.
Thus, following a signal from a trader with a proven track record ensures you stand a chance of profiting from the market.
If you use a copy trading platform, checking a provider’s track record is easy as it’s easily flashed on the platform. However, if you do it outside a copy trading platform, you must be able to communicate your questions to your provider.
Here are the important questions you must ask the master trader:
- What is your overall Win/Loss ratio?
- What is your winning percentage on different market analyses (fundamental analysis and technical analysis)
- What are your motivations for trading?
While the last question seems personal, this allows you to assess whether the master trader suits your overall trading style.
If their trading motivation is different from yours, they may trade in a way that you’re not comfortable with. This is integral to ensuring adherence to your risk appetite and overall investment goals.
Assess Trading Strategy
All strategies work – but it depends on a myriad of factors.
Trend-following strategies could work on a trending market but certainly not on a ranging one. At the same time, momentum indicators could benefit you most during a ranging market but less in a trending market.
Knowing the trading strategy of your copied trader can help you assess whether the signal fits the prevailing trend. This allows you to still personalize or control your trade despite copy trading.
Scrutinize Transparency
Consider the transparency of the master traders to avoid unwanted scams or unethical signal distribution.
Your trade setup provider shall regularly release signals’ success rate, Win/Rate ratio, and profitability.
Be cautious when the master trader markets their service unrealistically without proof backing the claim. This is the common deceitful practice of fraud marketers – exploiting the blind optimism of unsuspecting traders.
Don’t Settle with Only One Provider
The common mistake of copy traders is relying solely on a single master trader.
While this could be due to cost or underlying trust with the provider, doing this brings more harm than good to your account.
But here’s the good thing – many brokers offer a copy trading platform within their system. If you have a broker account supporting copy trading, you can access all available and authorized master traders.
Doing so wouldn’t require an additional payment to copy a trader, as it’s already factored in when you opened an account.
The Ultimate Way to Copy Trade Forex Setups
The secret to copying trade in the right way? It’s by doing it proactively.
A successful copy trader doesn’t copy a trade for its convenience – in fact, they shouldn’t see copy trading as a way to trade and profit without effort.
A successful copy trader knows passive copy trading would drag their investment down the drain. Thus, they try to verify the signal’s validity, if not supplement the signal, to ensure its accuracy and profitability.
However, this approach defeats its benefits to beginner traders. Thus, they must find a credible and reliable master trader. This ensures the trades you copy stand a chance of profiting in the market.
Join a Verified Online Trading Community for Credible Insights and Signals
What’s a better place to find credible insights and signals than a space where online traders gather?
However, there’s one thing you must consider – is the trading community verified?
If not, there’s a big chance that scammers or marketers will infest the group. Remember, frauds breed in these unregulated communities or social media platforms.
Ensure you join a verified trading community—one that follows a systematic approach to ensuring safety and accountability for all shared information.
TRU CommuniTrade sets itself apart from other online trading communities by implementing a rigorous verification process among all members. This process is in place to help the community members discern the underlying credibility of the source of information.
Frequently Asked Questions
Is Copy Trading Legal in South Africa?
Yes, copy trading is legal in South Africa.
To ensure the legitimacy of the copy trading platform, verify their compliance with the Financial Sector Conduct Authority – the financial regulatory body in South Africa.
This regulator oversees all the operations and transactions within the SA financial markets, ensuring fair practices between the financial service providers and their clients.
Does Copy Trading Work for Beginners?
Yes, copy trading works for beginners. It should be because this trading style is essentially made for them.
Approach it proactively to ensure you’re doing it right.
Never act upon a signal or trade setup without validating its accuracy—instead, cross-check other signals, assess the prevailing market environment, and check its alignment with your risk appetite and trading goals.
