Copy trading is a well-established concept in the global financial markets, supporting a large and rapidly expanding marketplace projected to reach a valuation of $3.77 billion by 2028 . In this beginner-friendly guide, we’ll explain how copy trading works and how you can get started.
Introduction to Copy Trading for Beginners
Copy trading is an innovative approach to trading that allows beginners and experienced traders alike to benefit from the sharing of knowledge and expertise. By definition, copy trading involves the process of automatically replicating or mirroring the trades of a selected trader within the trading platform. Upon selecting a trader to copy, their positions are duplicated within the copier’s trading account. Every subsequent trade executed by the trader is then replicated in the copier’s account through an automated process.
As the popularity of copy trading grows, it has become a sought-after tool for those looking to dip their toes into the world of trading. For beginners, this allows them to benefit from traders with more experience and insights which may help them gain a better understanding of the market and develop their own trading strategies.
Pro and Cons of Copy Trading
Now that you have a better understanding of the fundamentals of copy trading, it’s essential to consider its pros and cons before proceeding further. Here are some pros and cons to help evaluate whether copy trading is the right approach for your trading goals.
Pros of Copy Trading
- Easy to Adopt
One of the biggest advantages of copy trading is its relatively easy entry for novice and inexperienced investors who do not have extensive trading knowledge or experience. Instead of trading on your own, you could copy the trades or follow the strategies of the more experienced traders. However, it’s very important that you select the right lead trader, who has the excellent track record, to copy from.
- Time Saving
Copy trading is a time-saving solution that allows you to trade without having to commit all your time into active trading. By replicating the strategies of selected experienced traders, the process can be mostly automated, allowing trades to be executed more efficiently and thus freeing up time to be invested in other areas such as market research and risk management strategies.
- Opportunity to learn from Professional Traders
Copy trading provides the opportunity to observe and learn from the more experienced and accomplished traders. By following lead traders with a proven track record, you can learn about their trading strategies and techniques, which can be beneficial in developing your own trading skills.
Cons of Copy Trading
- Lack of Control
One of the biggest downsides of copy trading is that you have no control over the trading decisions made by the signal providers. In short, you can only select whom to copy from but not the trading decision that they would execute. Therefore, it is encouraged to continue monitor the trades, strategies, and market conditions in order to limit your exposure and mitigate the risks associated with copy trading.
- Results Are Not Guaranteed
Though copy trading allows the opportunity to access the trades of some very experienced and even professional traders, you are not free from the risk of losing your capital. Past performance is no guarantee of future results because there are always risks in the ever-changing financial markets and human performance.
3 Tips to Get Started with Copy Trading
For beginners, here are three things to consider before getting started on copy trading:
- Diversify your copied traders
Diversification is just as important to copy trading as it is to conventional trading. You should avoid placing all your eggs in one basket by following a single trader. Instead, you may allocate your trads across multiple traders with different trading styles, strategies, and assets to invest in. It is advisable to carefully consider every lead trader’s historical performance, risk tolerance, and trading strategy before entrusting your funds to anyone. Having a well-rounded and diversified copy trading portfolio could help mitigate the risk of exposing your entire capital to a single signal provider.
- Monitor and adjust your strategy
Copy trading may seem more passive than conventional trading, but it still requires regular monitoring and adjustments of your portfolio. Keep an eye on the performance of the traders you are copying from and be prepared to make adjustments if necessary. Stay informed about the market conditions, as they can significantly impact your copied trades. If a trader’s performance begins to decline or when their trading strategy no longer aligns with your trading goals, you should not hesitate to stop following them and seek out a more suitable trader.
- Choose the right platform and trader
Your copy trading experience is heavily influenced by the platform you choose and the traders you decide to follow. You are encouraged to select a reputable copy trading platform with high user-friendliness, tight security measures, and a diverse selection of experienced traders. Besides, you may pay close attention to the platform’s fee structure and user reviews before making your decision to start copy trading. After settling on a platform, it is crucial to evaluate the available traders whom you can copy from, based on factors such as trading style, historical performance, and risk tolerance to identify traders that align with your own trading goals.
Copy trading can be a valuable tool for beginners looking to learn from experienced traders and potentially mimic their returns. Ready to utilise the Copy Trading function to help with your trades?
Download the Vantage App today and discover how the enhanced Copy Trading function can help beginner trade with ease. The app user-friendly interface and comprehensive information will help beginner traders to succeed in their trading journey.
- “Is Copy Trading A Viable Way To Invest? – Finance Monthly” https://www.finance-monthly.com/2023/02/is-copy-trading-a-viable-way-to-invest/ Accessed 10 April 2023