Are you thinking about investing but have no idea where to start? Or you were too scared that your trading skills might not be good enough just yet to trade on your own? We’ve got some great news: you can trade like a pro even if you don’t have the skills or time for it by copying the trading activity of expert traders.
If trading was reserved only to experts just a couple of years ago, this is no longer the case. The world of investing has become more and more accessible thanks to the variety of tools and platforms that have opened up the way for everyone to join the Forex market.
The latest industry trend, which is growing in popularity by the day, is copy trading, or also known as social trading. Most social Forex and stock trading platforms today offer the option of copy trading, allowing traders to use the trading activity copied from signal providers. And, the best part of it all is that it will enable novices to join the world of investing without extensive knowledge of stocks, Forex, or investing. In fact, the World Economic Forum report has even called social trading a low-cost and sophisticated alternative to traditional wealth management.
So, read on to learn more about copy trading and how you can trade like a pro even if you are a novice in the world of investing.
The name of this trading strategy is pretty self-explanatory: you basically automatically copy the trading activity of more experienced traders. This strategy is also sometimes called mirror trading or social trading.
So, how exactly does it work? It allows you to look through the profiles of experienced traders and see their trading statistics. When you find an experienced trader you like, you automatically set your account to copy all their future trades. So, in other words, if the trader you choose opens a new trade, you also open a new trade. Even if the trader closes, you too close.
Obviously, as you copy their trading activity, you also copy the results they get. So, if the trader wins, you win. But, unfortunately, if the trader loses, so do you.
Now, the way copy trading is conducted can differ from one platform to another. However, the basic principle of this strategy remains the same. So, basically, you invest part of your portfolio in a particular trader or traders and copy all their investments in a percentage-based manner. This strategy allows traders to trade a little bit differently than people did in the past. Before copy trading grew in popularity, traders had to find a broker who they would pay commission to make trades on their behalf. Traders could either tell the broker what to buy, or take their investment advice, or just let the broker trade for them.
This was the case for a long time. However, the drawback of this way of investing was that it made trading a closed world, and sometimes brokers would act as gatekeepers. The rest of aspiring traders didn’t know how to trade and didn’t really think that they will ever be able to do it. But trading Forex is no longer a rich peoples’ world. It’s for everyone who wants to improve their financial status.
Here are just a few advantages of copy trading today:
•Learn about trading from pros
•Easy portfolio diversification
•It is beginner-friendly
Everything sounds great, but don’t know how to get started with copy trading? Read on.
Guide to copy trading
Copy trading doesn’t require extensive knowledge of Forex and investment, in general, but, make no mistake, it isn’t that piece of a cake either. Although you eventually leave it to the big players to bring you profit, you must also be smart about who you choose to leave your money with until you are able to do that.
Here are 3 tips on how to trade like the pros with copy trading:
1. Join a trading platform
Although this is an obvious one, it is worth mentioning. You first need to join a trading platform, not just any platform but also one that offers copy trading options. So, before you create your account, double-check for the social trading options.
2. Choose multiple popular investors
Once you are in, it is time to look for the pros who will be handling your investments.
Start browsing through the statistics of each and every experienced trader that catches your attention and choose the ones who have the biggest profits, and you would trust your money with. Now, you may have noticed that we’ve said “multiple investors,” and that’s because it is really important to diversify your investment portfolio. And, the more investors you choose to copy their trading activity, the more diversified your portfolio will be. Hence, the less risk of losing all your money.
3. Put your money to work
Once you decide on a few investors to copy, it is time to put your money to work. All you have to do is to allocate the amount of your capital that you want to copy trade via the platform, and your money will trade with the investors you have chosen. Depending on what the investors do, so will you. If they enter a particular trade, so will you. If they close, you will too. And it goes the same with whether they win or lose.
Extra tips for using copy trading:
•Always choose multiple traders to copy their trading activity
•Before selecting an investor, research their trades and strategies
•Diversify the traders you choose. If possible choose traders in different industries
•Opt for traders with long track records
•Reinvest your profits to gain more from the compound effect