What is Copy Trading? Is It A Risk-Free Trading Strategy?
The lack of time or experience is no longer an excuse for not trading. Gone are the days when one had to spend hours glued to the screen, let alone spend days perfecting trading skills to carve out a career out of trading. Copy trading is proving to be an ideal solution for navigating the capital markets with little or no experience.
What is Copy Trading?
Copy trading is a form of trading whereby traders copy the actions taken by experienced and skilled traders in the market. The copying action can be carried out manually or with the help of automated trading systems. Automated trading systems execute trades as executed by selected traders; therefore, relieving traders the burden and pressures of having to look out for trading opportunities.
In some cases, copy trading sees traders allocate funds to copy trade. Therefore, whenever a primary trader opens a position, the same actions are copied using the allocation in the same proportion as the trader and in real-time.
Copy-trading differs a great deal from social trading. While social trading is information reliant, copy trading is not. Copy-trading involves copying the actions taken by other traders rather than sharing trading ideas or information needed to open and close positions.
Copy trading is gaining prominence when most people are looking to invest in the capital markets. The ability to benefit from the experience and knowledge of experienced and skilled traders is one of the catalysts behind the spectacle. Likewise, beginners and novice traders are increasingly jumping to copy trading to earn while leveraging others’ experience.
How Copy Trading Works
Social networks and social systems are at the heart of copy trading. Whenever an experienced and skilled trader opens a position, they can broadcast the information to other traders leveraging the social network or social system in place.
Traders and automated trading systems can use the information to open similar trades without additional input. Most of the time, automated trading systems and traders copy primary traders’ actions on the belief they have carried out a detailed analysis of the market.
How to Find People to Copy Trade?
Copy-trading entails finding the right people from whom trading actions are copied. An excellent primary trader to copy trades from is one who:
Has a Low-Risk Score
It is essential to go with a trader with a low-risk score if one is to be successful and generate significant profits during copy trading. A primary trader with a low-risk score would, most of the time, rely on sensible investing strategies that lead to profitable ideas most of the time.
The experience that a primary trader brings to the table is an important aspect to consider when it comes to copy trading. An excellent primary trader has years of experience navigating the capital markets and has a proven track record of generating profitable trading ideas.
Has Experience on Various Markets
It is also essential to consider a primary trader who has experience in a vast array of markets to copy trades. Such a trader would go a long way in providing trading opportunities that allow one to diversify an investment portfolio.
Copy Trading Pros
No Experience Needed
Copy-trading offers a unique solution for people who wish to invest and grow their money without putting too much work. Similarly, the solution is proving to be highly effective for people who do not have the time needed to carry out in-depth analysis in search of trading opportunities.
Copy-trading provides a leeway to diversify an investment portfolio into markets with little or no knowledge. By merely following traders conversant with other markets, a trader can copy their trades and gain exposure without putting an effort to learn or understand the market.
In this case, trading decisions are based on the assumption that the primary trader knows what they are doing and knowledgeable of the intricacies involved in a given market.
Copy trading is an ideal trading strategy for people who do not have the time to spend glued to the screen in search of trading opportunities. Trading is a time-consuming venture that requires traders to spend hours glued to the screen, trying to study and understand chart patterns. However, by following and linking an account to an experienced and skilled trader, one can execute trades by merely following what the primary trader is doing.
Gain Access to All Markets
In addition to diversification, copy trading offers an ideal way of gaining access to all markets. No single trader is an expert in all markets. By following various traders, one can trade an array of markets at a go with little or no experience.
High Success Rate
Studies have shown that people who engage in copy trading boast of a high success rate than traders who trade based on their preference. By carefully choosing traders to follow and copy, one can improve their chances of being profitable while trading.
Copy Trading Cons
Copy-trading provides little incentive for beginners or novice traders to learn the markets let alone do their research.
Copy trading is not risk-free. A trader can end up copying trades that lead to losses on following a primary trader blindly. Some copy trading notice boards have been used by traders who wish to influence market prices for their financial gain.
Copy-trading enables experienced and novice traders to take part in the market by copying other traders’ actions. In this case, trades are executed either manually or with the help of automated trading systems by copying the actions taken by seasoned traders with proven track records.
Copy trading is a unique form of trading for people who do not have the time to conduct in-depth market analysis in search of trading opportunities. Likewise, the solution works best for people with limited trading skills but still want to invest money to grow the initial capital.