Copy trading is a genuinely great way to begin trading and as revealed by its name it entails the direct mimicking of the positions taken by another or other traders through the automated linking of your own portfolio with theirs. When you choose to copy a trader, then you are copying both their current open positions and all the actions they perform henceforth. If they open a trade, then your account does as well and the same happens if they close one. You win when they win and lose when they do. However, according to the platform you join and use you still maintain some degree of control over what happens and moderate the outcome by, for instance, escaping a losing trade short.
The popularity of copy trading is based largely on the fact that it poses an opportunity for new traders to make money on other peoples’ skills. In fact, a trend is now emerging where newbie traders compile people-based portfolios and instead of using assets or investment vehicles they choose the people they trade through and don’t perform the trades themselves manually but set their accounts to imitate those of others.
The actual way copy trading works depends on the platform you will choose to use, but the underlying principle remains that that you invest your funds on the decisions of another trader in a percentage based way. Most platforms will not allow you to invest more than a fixed percentage of your funds on a single trader as a risk management method. Exactly then because you are investing on the people and their decisions, it is very important to study their performance, track record and portfolio before choosing to copy them, much like you would have studied a particular asset or investment type before choosing to buy it.
Since the choice of trader to copy is so significant, it is better to choose one of the biggest and more established and reliable copy trading platforms to use, because they give you the benefit of greater numbers of expert traders to choose from, offering a more wide variety of people specializing in different markets, assets and investment vehicles.
Perhaps the most important mental note to make when pondering whether you should have a go at copy trading are the consistent results of several studies, which indicate that traders relying on carefully selected copy trades are up to 10% more successful than people who trade manually or choose their traders based on personal preferences.