Copy Trading or Mirror Trading is a trading methodology used primarily in the Forex markets. It is a strategy that allows investors to copy the operations of experienced traders. When a person copy trades, he successfully copies the trades of those traders in real time and into his own broker account. Copy trading was initially only available to institutional clients, but has since been made available to retail investors through various means. Since its arrival on the markets in the mid-to-late 2000s, copy trading has inspired other similar strategies, such as social trading.
Table of Contents
Key ideas
Copy trading allows traders and investors to copy others by implementing the same trading operations that others do in their own trading accounts.
Copy trading can be done both in Forex accounts and in stock markets, indices, ETFs, CFDs and commodities. However, copy trading is more common in Forex trading.
Copy trading has become a more acceptable alternative for traders and investors. As the tools available online increase transparency and information, taking this trading strategy today is much more reliable than ever.
What is Copy Trading?
Copy trading is an operating strategy in financial markets that is automated by nature. With it, investors can avoid making trading decisions based on emotion. Copy traders in the Forex markets will often use a broker’s trading platform (a software similar to MetaTrader, version 4 or 5) to examine the historical details and trading strategies of multiple investors. In the stock market, they can use the services of a broker, such as Interactive Advisors from Interactive Brokers. It is also possible to use a third-party service, such as collective2.com, for example.
After researching the performance characteristics, the trader chooses an algorithmic trading strategy based on his investment objectives, risk tolerance, investment capital, and the assets he wishes to invest. For example, if a trader has a minimal risk tolerance, he may choose a copy trading strategy that has a maximum low point of dips. When the strategy developers execute their trades, these trades are duplicated in the copy traders’ accounts using automated software that operates 24 hours a day with the intention of replicating the same results. Major Forex brokers offer copy trading strategies, some of them include AvaTrade, FXCM, Dukascopy and eToro.
What are the benefits of Copy Trading?
Reduces emotions
Since copy trading determines when a trade is opened, closed or altered, this takes the stress out of making trading decisions. This is particularly beneficial for novice investors who might find Forex trading overwhelming. Instead of worrying about market fluctuations on a day-to-day basis, an investor can simply look at the performance of his copy trading account at the end of each week and determine if he wants to continue using that strategy.
Verified results
Forex brokers that offer copy trading usually examine, evaluate, and validate the results of the trading strategies that they upload to their platforms to help filter out losing trades. For example, before a new strategy is accepted, a broker might be required to have a minimum 12-month record of profitability with a specified maximum loss. When selecting a Forex broker that offers a copy trading strategy, investors should ask what the results of a strategy have been verified to ensure they have gone through rigorous evaluation.
Disadvantages of Copy Trading
The robustness of the strategies
Some copy-trading strategies may only provide good results under certain market conditions. For example, a strategy might perform well in trending markets but underperform in range-bound markets. Investors should evaluate the performance of a strategy in various market conditions to ensure its robustness.
Risk assessment
Although it is quite easy to assess whether a trading account is generating profits, it is even more difficult to determine what risks were taken to obtain those profits. For example, a strategy that has generated 300% over the last twelve months might initially look great, but further analysis of the strategy might indicate that to achieve such results, the investor would have to endure an 80% drop in the capital.
Frauds in Copy Trading
In 2017, Deutsche Bank was fined USD 425 million by the New York Department of Financial Services and £163 million by the Financial Conduct Authority (British regulator) for operations that were called “copy trading”. However, this reference does not reflect retail traders copying experienced traders, rather it was about money laundering. Russian shares were being bought through Deutsche Bank in Moscow (in rubles), the same shares were being sold to Deutsche Bank in London (in US dollars). This effectively created a money laundering pipeline that went on for several years. This fraudulent activity should not be confused with copy trading despite being misnamed in the financial report.
Copy Trading through social trading platforms
In addition to copy trading through algorithms that follow a certain investment and risk strategy, you can also copy trade through social trading. Generally, Social Trading is now the best-known form of Copy Trading. Social trading or social trading is gaining great popularity these days and the reason for this is that it does not require special skills or experience.
When you copy trade, you are not investing in currencies, energies, cryptocurrencies, or indices. You invest in a real person, a trader. That’s where social copy trading gets its name because you invest in a person, you copy their trades.
If the trader is successful then you will get your share of the profit. So we can say that the trader does all the hard work: reading the financial news, doing the market analysis, and following the trading signals, while you simply copy his trades.
With social copy trading, all you need is a smartphone. Install a copy trading app, usually a broker or market maker, create an account, and you’re all set. You don’t need all the technical skills to get started – just pick a trader and follow their trading strategy.
Is copy trading risky?
According to the FBS broker, copy trading is completely risk-free. One quality is that with copy trading applications, you can always choose to be protected against significant losses. With automated features like a “Stop Loss” and “Take Profit”, you can automatically close an order with a particular amount of profit or loss.
This is not to say that it is not totally risky. You simply have more options to limit your losses, even when the trader you are copying may take more losses and not close their trades on time.
On some other platforms like eToro, you can even see a section for stock comments and discussions. With these features, you can observe and decide for yourself, which type of strategy is more convenient for you and which traders are more suited to your preferred strategy.
Is copy trading legal?
Copy trading is legal in most countries of the world. The first thing you need is a regulated broker that provides you with a trading platform. With social trading platforms, you can engage with the traders you want to copy and even ask them questions about their trading strategies. The most interesting of all is that the information remains transparent and you access resources that you would not have with traditional brokers.
How to do Copy Trading the easy way, step by step
1. The first step to copy trading is to create an account on a trusted trading platform. This is at a regulated broker. Some broker regulatory entities are the SEC, the FCA, the CySEC or the ASIC of Australia. If the broker you trade with is regulated by any of these entities, then it is certain that you can have an account with them. On most trading platforms, there are options to follow traders. There are different standards for selecting the right trader to follow and copy. For example, you might want to follow a trader who has more profit or one who has more consistent results over time. You might also want to copy a trader with a conservative portfolio. All this will depend on the objectives you have in mind and your risk tolerance.
2. The second step to take is to decide the amount you want to invest and be prepared to face the risk. As the saying goes, never put all your eggs in one basket. Start with a small percentage of your disposable income, and remember that investing always comes with the risk that you won’t get all of your money back.
3. The third step is to choose the trader you want to copy and just watch. There are trading platforms that automatically copy your stock selection with the investors you are copying and following. However, there is also a manual way to copy trades by viewing your favorite traders’ portfolios and start buying and selling yourself after viewing their trades.
Copy Trading is simple
Well, the key to successful trading is to be immersed in knowledge. You can achieve this by joining various trading groups. Some people copy trading by joining a Facebook group or a Robinhood group, where people actively give suggestions of stocks to buy, sell, and add more money too.
Another option for copy trading is to use an automated trading platform. There is much software that alludes to de-stress after making stock purchases. This could be an option for a person who is just now entering the market.
How to copy the best traders and obtain higher profits in this type of investment?
The best traders (who are signal providers) typically have a large following on social trading platforms. They have an established track record of earnings (history with monthly results), risk-adjusted returns, and above-average performance.
To copy the best traders, try to look beyond the absolute results of the traders you want to copy. It is better to review additional trading metrics – average wins and losses, the number of orders placed and their average duration. Depending on your goals, it may also be important to look at the right balance of diversification.
Important: You should always consider the time horizon or expected duration of your investment when copying other traders. Even if you have analyzed the historical performance of a signal provider, keep in mind that your trading strategy could vary from day to day in frequency and volume. There is no magic crystal ball for predicting market movements, so it is important to look for traders who are statistically consistent.
Why is Copy Trading becoming so popular all over the world?
Social trading technologies give smartphone users an awesome tool to earn passive income. When you copy operations, you don’t do anything special beyond tapping on your smartphone screen. With these tools you let money work for you, while you continue with the occupations of your life.
The phenomenon of social trading has made a huge impact on people’s lives in recent years. Just look at the numbers: millions of people download social trading and copy trading apps. With these platforms, many people make their first investments in financial markets.
One fascinating element that makes copy trading so popular is that trading platforms have turned to gamification. Thanks to gamification, entering a trading application is like entering an online game app. All the elements are organized on the screen of your smartphone to make things simple and fun. All you have to do is do some very basic research, choose your strategy, and stick with it over time.
Best platforms for Copy Trading
Below we take a look at the best platforms for copy trading.
NAGA
NAGA, one of the most recommended platforms for copy trading.
This platform allows users, especially newbies, to copy trades from more than 9,000 advanced users or strategy providers. All signal providers are strictly selected through various stages of evaluation. From the most traded selection table, one can view the most used financial instruments on the platform and select a star next to them, and then add them to favorite instruments.
As far as copy trading is concerned, the platform allows you to study the statistics of the traders’ operations, so that you can determine which one to copy.
The parameters for your selection include profitability, whether traders are selling or buying, the number of pips, take profit orders, stop loss orders, etc. You can see how many people are following a trader, his profile and his profit and loss history. Additionally, you can see the profile visitors and who else these visitors are copying.
The minimum amount to carry out copy trading operations with this broker is 250 dollars.
Visit the platform’s website to learn more: NAGA.
eToro
eToro offers crypto trading and investing in addition to a crypto wallet for sending and managing your portfolio. With this platform, you can trade more than 20 cryptocurrencies for fiat money and you can use multiple payment methods to buy, sell or withdraw. These include debit cards, credit cards, bank accounts, Skrill and Neteller.
eToro is the largest and most popular copy trading platform in the world.eToro mobile and web platforms.
eToro features include
An Android and iOS app as well as an in-browser platform.
Investment strategies and copy trading of other users.
Portfolios are available for copying. They include cryptocurrency portfolios, stocks by sector, commodities, and many more.
Public profiles for traders who want to share their investment strategies.
A virtual $100 demo account for you to practice on.
Follow-up options to get news and updates from other traders
You can learn more by visiting the eToro website
Below you can see a review on eToro Copy Trading:
AvaTrade
Founded in 2006, AvaTrade offers investor research and education in addition to its copy trading features. It is one of the most secure platforms, as it is highly regulated in two jurisdictions. The company offers 5 trading platforms called AvaTrade, WebTrader, AvaOptions, and the ZuluTrade and DupliTrade social trading platforms.
It allows traders to trade cryptocurrencies and other assets through CFDs or contracts for difference, allowing users to speculate on future movements in market prices. A user does not need to buy, hold or manage cryptocurrencies in his portfolio directly, but only speculates on future prices and makes a profit through CFDs.
AvaTrade Key Features
Desktop application and AvaTradeGo mobile application.
Social trading works by letting users follow, copy and trade after the market moves of experienced traders. This reduces the learning curve and time to market. It allows you to trade new assets and those with which you are not familiar.
You can ask the experts questions, have mentoring groups and trading groups, and discover trading strategies and new experts.
Automated trading experience.
Access to cryptocurrencies such as Bitcoin, Bitcoin Cash, Ethereum, Bitcoin Gold, EOS, Ripple, Dash and Litecoin.
The social trading features have been brought to life by AvaSocial in partnership with Pelican Trading.
The minimum amount to carry out Copy Trading is USD 100.
You can learn more by visiting the AvaTrade website.
B2Broker
This platform allows users to trade Forex, CFDs, and cryptocurrencies. As its name indicates, it works mainly for institutional (business-to-business) trading and investment operations.
However, it also facilitates investment and investment training for individuals. The company was founded in 2014 and is based in Russia. It groups brokers into different categories, including cryptocurrency, forex, crypto exchanges, social trading, asset management, and bonds/futures/stocks.
In the institutional trading categories, there are liquidity providers, trading tool providers, white-label solutions, CRMs, regulators, affiliate programs, and websites.
In relation to social trading, there are three categories provided by pools of brokers and exchanges, in which an individual can contribute and earn from trading profits, multiple account managers, and copy trading.
As special characteristics of this broker we have:
MT4, cTrader, desktop X-Station, mobile and desktop platforms.
demo accounts
Customer Support.
The minimum deposit with this provider is $20,000.
You can learn more by visiting the B2Broker website
ZuluTrade
ZuluTrade groups more than one million clients from all over the world and has a trading volume of more than 800,000 million dollars. The company started in 2014 and is therefore eToro’s direct competitor when it comes to copy trading because it has many users with proven profit records.
ZuluTrade allows experienced traders to earn money by sharing their money with other users.
Those interested in doing copy trading on the platform can access the profile of other users, the amount of money they manage from the people who copy them, the amount of money of the traders they follow and their annual investment returns.
As key features of ZuluTrade we have:
It is possible to do automated trading with amounts between USD 1 and USD 300.
You can trade cryptocurrencies, CFDs, Forex, commodities, stocks, and more than 40 types of securities.
UK-based clients are not allowed to trade cryptocurrencies. The others can trade Bitcoin, Ripple, Bitcoin Cash, Litecoin, Ethereum and the most popular cryptocurrencies.
ZuluTrade can be traded with MetaTrader 4 and 5.
It has apps for iOS and Android.
Minimum deposits range from USD 1 to USD 300, depending on the broker used.
You can learn more by visiting the ZuluTrade website.
Forex Copy
Forex Copier allows you to copy trade locally and remotely. Both forms allow users to buy and sell signals from and to other users. Signal sellers can also automate their passive income.
Signal sellers can also automate their passive income.
This is a great tool if you want to organize your signal provider community. In that case, you can have subscribers to your signals and manage them by deleting them and setting their subscription expiration date. You can use leverage in copy trading to multiply the trading volume of your copied trades.
According to the website, the platform is used by more than 5,000 traders in 122 countries.
Some key features of Forex Copier are:
You can send signals from MT4 and MT5 and vice versa.
Use reverse copy trading mode to profit from other traders’ losses and limit your exposure using stop loss and take profit tools.
Adjusts the open and close trade prices on the copied trades.
Filter the orders to be copied in terms of size, pairs and number of orders.
Demo platform.
Copy Time Management Tools.
Trading with leverage.
You can learn more about the platform by visiting the Forex Copier website.