What is Copy Trading and How Does It Work?

More and more people are interested in investing money. Nowadays, we can choose from a variety of options. In this article, you will find a complete guide to copying traders on the currency exchange in 2022. 

History of Copying Traders

To fully understand copy trading, we must first learn something about its history and development. It didn't always look like it did today. The first form of copying stores was ordinary emails. This was done in such a way that some traders informed their followers of their interest in opening or closing certain trade transactions by sending an email and they then opened or closed the same trade independently of them.

Later, the first virtual trading room was created, so the trader no longer had to share his intention in the e-mail, but only shared it in a virtual space where his followers could read the information and copy the store.

The first chat rooms were created, so you could also discuss individual investments. However, all of this required the full attention and presence of stakeholders in front of the computer.

Today we can copy traders through various devices.

There was a historic turnaround in 2005. A number of online brokers realised the potential of automated trading, where one entity would generate trading signals and all other parties associated with it would automatically copy them to their trading accounts without having to constantly monitor their email or trading room.

The first company to design such a system was Tradency. They named the service Mirror Trader, so it was mirror trading. The trader was finally able to organise his own trading strategy in systems with trading records that indicated the performance of this strategy. Based on these numbers, other users were able to decide whether to copy all transactions created from this strategy to their accounts.

Subsequently, the term copy trading began to be used for this activity, which is an increasingly popular tool online today trading.

What is Copy Trading?

Copy trading is an innovative investment service, thanks to which the investor can automatically copy on his trading account any made by other traders.

Just like regular online trading, copy trading is based on tracking charts and statistics. In this case, however, instead of moving in the market, we are seeing real people. Before you choose traders, it is important to look at that trader's portfolio. It is useful to find out what trading strategy he uses, how successful he is, what risks he is exposed to, etc.

An important feature of copy Trading is that the investor does not give their funds to a third party ie to the other trader, as is the case with conventional investment methods. In this case, the investor simply opens his own trading account and then links his account with the selected trader via the copy trading platform.

In practice, the funds are always in the hands of the investor, the third party does not provide any money or trade.

Benefits of Copy Trading

Trade copying provides many benefits and is therefore becoming an increasingly popular form of investing in financial markets.

• First and foremost, it allows novice investors to become familiar with financial markets and gain confidence in investing as such.
• Allows traders to participate in the market even when they are too busy and unable to invest their valuable time analysing charts and economic reports.
• Copy trading can be used on various financial instruments, including currency pairs, stocks, commodities,  and more.
• Thanks to copying traders, you can start investing with a small amount of financial capital.
• Your money can be" managed "by successful traders and investors.
• You can stop or cancel copying traders at any time.

How Does Copying Traders Work?

Copying traders allows anyone interested to copy the trades of successful investors in the financial markets. The goal of copying traders is for the investor to achieve the same value for their capital as the trader they copy.

When you copy a trader, you don't get information about his strategy, but you simply follow his investment. When the selected trader executes the trade, your account will also execute it automatically in real-time.

But imagine that you have $ 1,000 in your trading account and you want to copy the trades of an investor who has $ 100,000 in your account. If he invested only 1% of his capital in a given transaction, you would have to invest everything. And if it were a failed trade, you would go bankrupt.

So it is clear that you cannot invest the same amount in nominal terms as the trader. And that's what the copy trading platform takes care of. Your task is to provide her with the necessary instructions and settings with which you want to copy the selected trader. Such a setting can be, for example, the information that if a given trader invests 1% of his capital, then you also want to invest such a percentage from your account.

Some copy trading platforms have these settings built in automatically. and you just need to set the amount invested

The Process of Copying Traders

1. If the signal provider / popular investor opens a new trade, his broker will send the data of this trade to the copy trading platform.
2. The trading platform receives data about the new trade and verifies who the investors are who copy the signal provider. It then checks their settings for copying the selected trader.
3. The platform then sends each investor details about opening a new trade but adjusts it according to the client's specific settings.
4. It then opens in the customer's trading account. the store.

This process will happen automatically, and even more so within a few tenths of a second!

Who Are the Signal Providers and Followers?

The process of copying trades starts with the so-called signal provider. For some brokers, we may encounter the term strategy manager or popular investor. He is a trader who has created a trading system according to which he trades himself and allows other investors to copy their investments.

A follower is an investor who copies the trades of the strategy provider or popular investor.

Copy Trading Platform

Copy trading is enabled by the copy Trading platform. Each platform contains basic and additional functions. On each platform, you will find your profile in which you can monitor the development of your investments. You will find a list of investors/strategy providers in the platform for copying traders. After clicking on the strategy provider's profile, you will see your business history and other statistics.

A quality copy trading platform also contains all popular options deposit and withdrawal. You can also install multiple platforms on your smartphone or tablet. This way, you can check the status of your investments at any time and analyse how the selected popular investors are doing.

Some platforms also allow traders to place an order Stop Loss, which allows traders to control the risk of copying traders.

How to Start to Copy Traders?

Getting started copying traders is very easy. Let's take a look at each step:

1. Create a trading account with a broker
2. Deposit funds to your broker account
3. Choose the trader or investor you want to copy
4. Choose the amount to invest
5. Click the copy button
6. Depending on the platform's features, you can also set a protective Stop Loss instruction and other settings

Quality Brokers for Copying Traders

Copying traders is becoming an increasingly popular service. Many companies are aware of this and are starting to provide this unique investment service.

Below you will find companies that provide excellent conditions for copying traders. These companies are regulated by the strictest authorities in the European Union, have client accounts in separate accounts and provide customer support 24 hours a day, 5 days a week.

How to Choose an Investor That Pays to Copy?

Every strategy manager or popular investor uses a different trading strategy, trades different financial instruments and uses different methods of money management. There are a really large number of these categories, and it's up to you to track and copy traders.

Copy trading is very flexible and can be used for many investment strategies.

Each investor has his own goal and tolerance for risk. As the right follower and investor when copying traders, you need to set some realistic goals that you want to achieve by trading. You need to analyse your intentions, be aware of the risk and manage it effectively.

In our experience, it is appropriate to When choosing a popular investor, follow these points:

1. Trading time - see the trading history of a popular investor. First, notice how long this investor has been trading. It is safer to copy a trader who has been trading on the stock exchange for more than 1 year.
2. Trading instruments - see also traded instruments. Copy trading is very flexible and you can copy investors with different investment strategies. It is advisable to diversify your copy trading portfolio into popular investors who trade various financial instruments. For example, I decide to copy three popular investors/strategy providers. The first investor trades currency pairs, the second trades commodities and the third invests in shares.
3. Risk Reward Ratio (RRR) - this figure represents the risk-to-profit ratio. The statistically most robust RRR is the 1: 1 risk-to-profit ratio.
4. Drawdown - note the data on the largest decrease in capital (drawdown) in a certain period (1 year, 2 years, or throughout the period). This information will show you how the investor manages the risk in adverse situations. This drawdown shouldn't exceed more than 15% per year. As a rule of thumb, the lower the drawdown, the more likely you are to make a profit by copying the trader.
5. Followers - represents the social aspect and popularity of the investor. We certainly do not have to rely on this single point, but it can point us to the fact that how many followers trust and copy the popular investor. In most cases, this means that he is a popular investor with a lot of experience who is profitable in the long run.

Trader Copy Fees

As we explained earlier, you replicate investor trades in your trading account when copying traders. For example, if a popular investor invests 2% of their capital in buying shares, you will automatically buy the same in your account shares worth 2% of your trading account.

In this copy process, you pay the same fees as if you were trading. So when copying traders, you can pay a fee for the transaction, part of the spread or you can pay a fee for transferring the open trading position to the next day (swap).

In some companies, you may pay one of these fees:

• Entry fee - this fee is charged at the beginning of the trader/strategy provider copy
• Performance fee - is paid only from the profit that the follower made by copying the trader
• Management fee - this fee represents a reward for the provider's strategy for "managing" followers' funds

Conclusion

Copy trading is a great service for beginning marketers. It will allow you to enter the sometimes dreaded world of finance and potentially make some profits. Even with losses, copying traders protect you from losing all of your capital (as long as you copy quality strategy providers). Although copy trading does not provide any guarantees, it is an ideal way to start investing.

This form of investing offers a unique solution for people who want to invest their money, but don't have enough time or experience to invest. Copying traders thus allows you to use the knowledge of more experienced investors.

Knowing how to invest well requires some knowledge and experience, which each investor will gain through their own studies and practice. So why not entrust your investment to someone who knows the world of trading in the beginning? And that's exactly what copy trading is all about.