The advent of the financial markets on the internet has opened them up to millions of people around the world. An increasing number of people trade the financial markets and for many, this is their main source of income. With the growth of online trading, brokerages and other trading platforms are providing tools that are making it easier for people to trade forex and other financial instruments. One such feature and a trading tool is copy trading.
Copy trading is a popular trading feature designed for traders that lack experience and expertise in a specific market. It is also useful for traders that have a limited time to commit to financial assets trading. For UK traders, we put together this review to explain what copy trading is and how it works.
To explain briefly, copy trading is a branch of social trading that allows a trader to copy another trader’s account when they enter or exit trades. The copy trading technique can be automatic or manual, and the trader can decide the way they intend to approach copy trading.
However, before you start copy trading in the UK, there are some things you need to know. You also should carry out your own market analysis on your trade positions and particular market before you start trading.
What is Copy Trading?
From the name, copy trading is simple to understand. As mentioned above, it is a branch of social trading that allows you to copy the trading positions of another trader, both when they enter or exit a trade. As a UK trader, you select an expert trader to follow and you can then copy their trading movements. If the expert trader opens a position on a currency pair, you do the same on that currency pair. If they use 5% of their trading capital on a specific stock sector, you will equally do the same. When the trade ends and they take profit, so do you.
However, it is important to that that you should not start copy trading without putting the right things in place. The key to becoming a successful copy trader in the UK is to follow a trader whose investment style and goals are similar to yours. For instance, if you are a conservative trader or investor, then copy the trades of an expert trader that is conservative and not one that is a risk-taker.
The expansion of the financial markets has made it possible for traders to conduct copy trading on their own or via a copy trading platform. Using a copy trading platform allows you to choose a trading professional you wish to mimic. The platform might even offer the service of making the investments for you as the trades are executed automatically with little input from your end. However, you are still able to choose the investor you wish to follow as well as select the trading parameters you wish to copy trade within. Before you start copy trading, ensure that you have enough capital in your trading account to cover for the trading activities.
Advantages of Copy Trading
Copy trading offers numerous benefits to traders in the UK. They include:
- Leverage other people’s knowledge and experience
Copy trading, also referred to as mirror trading, allows inexperienced traders to take advantage of an expert’s investment knowledge and experience. You don’t need to analyze the market movements or trends to decide the currency pairs or securities to buy, sell, or hold. You only need to follow an expert trader and they will do all the market analysis. If you pick a trader that has a high success rate and who generates high returns from their trades, then as a result, copying their trades will allow you to earn high returns in your portfolio also.
- Passive income
Trading financial instruments with copy trading can be mostly passive. You are leaving the task of choosing the assets to the expert trader, and you can earn returns on your investment without spending hours researching the financial markets. It is easy to diversify your portfolio and deploy risk management techniques since the expert trader is making such decisions on your behalf.
- Information from numerous sources
Copy trading platforms allow traders to access a wide range of information from their numerous sources. The platforms store a plethora of information from expert traders, and new traders can use this information to access experienced traders and to follow their investment advice.
- Build a trader’s confidence
New traders can build their confidence by trying out copy trading. Although the system isn’t 100% perfect and traders can fail and lose their money, newbie traders have a higher chance of success compared when they copy the trades of pro traders rather than go at it by themselves. Copy trading also serves as a reminder to novice traders that it is normal to lose money when trading online, and doing so, is not a sign of failure. Yes, even the best of the best traders lose money sometimes. Novice traders can get the boost they need to try independent forex trading once they are confident with their copy trading techniques.
When looking for a trader to emulate, there are certain criteria to consider:
- Years of trading experience
- Trading and investment track record
- Number of open positions
- Preferred investment style
- Holding time for trading positions
As a newbie trader, you have to consider what you wish to do with your portfolio before you choose an expert trader to follow. If you are looking for diversified investments, you should copy an expert that focuses on forex, commodities, or hedge funds.
Disadvantages of Copy Trading
While copy trading offers numerous benefits, there are arguments against it.
- Your success depends on another investor
The first downside to copy trading is that your success depends on the movements that another investor makes that you follow. No forex or financial asset investor is perfect when it comes to buying and selling instruments. Hence, copy trading comes with a lot of risks as you are only hoping the expert trader delivers maximum returns. Regardless, there are no profit guarantees when it comes to copy trading.
- It takes time to research top traders
Although you are copying the moves of other traders, you need to copy the moves of traders that are exceptional and obtain profitable results. To do so, you need to spend some time researching the top traders, learning about how they operate, and whether their trading style is aligned with your goals and trading preferences. Choosing a random trader to follow is a bad strategy as you could lose your money if they make the wrong moves.
- It is expensive
Copy trading can also be expensive as you would be paying commissions for regular trades. For traders that use copy trading platforms to manage their portfolio, there are other charges, such as management or administrative fees. Hence, you have to look at the costs before you consider venturing into copy trading.
- Being overconfident
By copying another trader, you might develop a false sense of security, and this can lead to overconfidence. As such, you might not pay much attention to the market as you should. Even as a copy trader, you cannot just set and open trades and forget about them. You need to pay attention and monitor the trades, analyzing the strategies of the expert traders as this will help you refine your own strategies.
- Varying trading conditions
As a new trader, you might be working under different conditions from the expert traders you are copying. Copy trading patterns imply that you should have any idea what the circumstances of the expert traders are. The expert trader’s investment portfolio might be more diversified than yours, or they may have secure capital in other low-risk investments. Lack of such knowledge will blindside you as you are only copying the trading moves the expert traders are making. Thus, it might end up in losses and might affect you more than it will affect the expert trader.
How Does Copy Trading Work for UK traders?
Copy trading is a section of social trading. However, while social trading relies on the information provided by other traders, copy trading relies on the actions taken by the expert trader. This means that copy trading allows you to copy the moves carried out by other top traders. You can conduct the copy trading yourself or use the automatic system provided by the copy trading platform you are using.
Copy trading works by connecting a part of your portfolio with the portfolio of an expert trader you chose. Once you copy a pro trader, all their opened trades are copied to your trading account. Also, their future trading actions are automatically copied to your account. Hence, you need to carefully select the pro trader you wish to copy as their results will reflect on whether you make a profit or record losses.
To copy a trader, you will need to choose a sum to invest in that particular trader. In most cases, the sum is limited to just 20 percent of your total portfolio or less. The sum you deposit to be used by the copy trader allocates them capital based on the percentage and how much you decide to invest for the trading. For instance, if your copy trading account balance has $1,000 and you don’t have any open trades, you can decide to copy the trades of a pro trader. The stats of an expert trader on the platform looks promising, and you decide to invest and see the returns you can get. Roughly 20% or any lower percentage you chose will be allocated into the new copy trading account, and a trade will be opened for you, with the trades of the expert trader copied to your account.
If you are going with 20 percent, then you will have an investment of $200 in your copy trading portfolio for a particular trader. If the expert trader makes a trade of $1,000, your copy trading account will automatically make the same trade. However, your trading account will invest 20 percent of the $1,000 they invested, which is $200. You don’t have to worry about calculating the percentages as the copy trading platform will handle everything automatically for you after you choose your pro trader.
Keep in mind that some trading platforms have an automated system that a certain percentage of your portfolio is invested in. Ensure that you check the site policy before you trade with real money and make sure that you can afford the requirements.
When you find a trader that fits into your investment profile, you can easily increase your trading capital and the amount you invest per trade. In this way, you will be able to invest more per trade, allowing you to earn more profits on successful trades. However, by staking more money, you are increasing your risk level as your losses will be bigger when you lose a trade. Hence, it is better to keep a diversified portfolio and don’t put all your capital into a single trader. You can still reduce or increase the investment capital based on the performance of a trader. If you are satisfied with the results of a trader, you can invest more to enable you to increase your chances of profits. However, always keep in mind that trading involves risks, and you are bound to lose money sometimes.
Manual and Automated
Some copy trading platforms allow traders to be more in control than others. While some platforms run a flexible system, others run a rigid one. Hence, you have to check with the platform provider to find out the features they offer before you make any investment decision.
When you start copy trading, you can have varying levels of controls based on the platform you choose to trade with. Some copy trading platforms run a flexible system that allows you to change how you conduct the trades followed by the expert traders. This means that you do not need to enter into every trade the pro trader enters into. On the other hand, some platforms operate a fixed system, which means that once you subscribe to a trader, the only way to change things is if you stop copying them completely.
With a flexible system, if there is a trade that you don’t like and you believe that leaving it open for a longer period might cause you to lose money, then you can manually close the trade. This isn’t possible when you go for a platform that operates a fixed system. Hence, it is best to find out the type of system the platform operates before you sign up with them.
To understand copy trading, we will give you an example. Let us assume that there was a domestic market crash in Turkey, and you wanted to gain more exposure to the Turkish lira (TRY). If you know that you have limited knowledge about the economic and political nature of Turkey and little information on central bank policies, then you would be handicapped when making investment decisions. You can turn to copy trading and leverage the knowledge and expertise of another trader that is familiar with the economic situation in the country.
This will allow you to make profits from someone else’s investment expertise while also gaining knowledge and experience in a market that you didn’t have prior experience with. However, as we have discussed several times, before committing real money to the advice of another trader, ensure that you conduct market analysis on your own, even when you have limited knowledge of the underlying market.
What to Know Before You Launch your Copy Trading Career
Before you launch your copy trading career, you need to learn how to conduct market research by yourself. This is especially true if, as a trader, you are unfamiliar with the way an asset class works. There are several trading platforms that offer resources and tools that will help you carry out market analysis with ease.
When choosing a trading platform for copy trading, choose the one that offers trading signals, alerts, and technical chart indicators. These features allow you to get notifications on market behavior, and that will dictate the moves you make. The technical indicators will also help you analyze historical price action and make predictions about what might happen to the price of an asset in the future.
To launch your copy trading carry, follow these steps:
- Research and find a trading platform that offers the features and trading tools you want.
- Open an account with the trading platform of your choice – make sure that you select a reputable broker.
- Conduct some preliminary research on the leading expert traders available to you on a trading platform. Make sure you check criteria such as their trading style, winning ratio, and more.
- Subscribe to the actions of the expert traders and open a position. Make sure to check stop loss and take profit limits as it allows you to manage the risks more effectively.
- Monitor the trading positions and close them when it is time. Take your profit after the trade closes or count your losses and prepare for the next trade.
Copy Trading FAQs
Should I try copy trading?
Yes, you can. Copy trading is an exciting way to kickstart your Forex trading career. It allows you to copy the trades of experts and make the profits they are earning while also presenting you with the opportunities to learn what they know. You will learn how to deploy various strategies, conduct market analysis, and accept losses as part of the process. Once you reach a comfortable stage, you can become an independent trader.
Is there a delay between the trader’s and my copy trading account?
Usually, there are no delays as the trades in your account are submitted electronically. However, delays can happen in copy trading due to certain circumstances. Make sure you choose a broker or trading platform that has a copy execution time of a few seconds.
Do I get the same price as the expert trader I copy?
No, this will not always happen because of the small delays and the differences in the broker’s spreads. This means that the prices might be close, but they will not always be the same. This is called slippage in trading, and it can be positive or negative.
Is every trade copied?
On certain occasions, you might decide not to execute a trade from the expert trader if you are not comfortable with it.
How much does copy trading cost?
The costs depend on the copy trading platform you use. Hence, do proper research on a platform and be familiar with their fees before you sign up.
Do I need any prior experience to “copy trade”?
You do not need prior experience to start copy trading. You will need a basic knowledge of copy trading to start, and this can be found in the education section of the broker platform and other online materials.
Copy trading is a good way for novice traders or those that don’t have time to analyze the markets to copy the trades of expert traders and to generate similar returns. It presents a good way for traders to learn the strategies and risk management techniques deployed by some of the leading financial markets traders in the world.
Copy trading is easy to start, and you can get started with just a few simple steps. Start today and begin earning the profits generated by some of the leading financial markets experts in the world with ease.
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