Have you heard the term copy trading and wondered what all the excitement is? If so, you’re like many others who read news stories in the financial press about this new way of buying and selling securities. The idea of mimicking the actions of experts is intriguing and has propelled many newcomers into the global financial markets for the very first time.
Those who were once reluctant to deal in stocks, forex, cryptocurrency, and other assets have gained new confidence simply by following the moves of experts and highly experienced investors. Is this new practice ideal for everyone? Probably not, but it’s gained enough followers that most anyone can try it and see for themselves if copy trading is suitable to their style of investing and personal risk tolerance.
There are basic rules of money that you may already follow but trading is its own unique sector. In order to understand whether it’s right for you, step one is to acquire a basic grasp of what it is, learn about the advantages, study the risks, review the essential steps for success, and find a broker who offers the service. Additionally, it’s wise to learn to compare the track records of experts, start with a small copying account to test the waters, diversify your risk by following more than one experienced trader, and do regular reviews of your own profit-making ability. Here are suggestions for anyone who wishes to see what copy trading is all about.
What is Copy Trading?
Anyone who wants to learn more about copy trading can investigate several excellent resources. There’s a lot of information online about the history of the practice and the way people do it on a day-to-day basis. In its simplest form, copy trading has been around since about 2005. Ordinary investors can sign up for copy accounts in which they place some or all of their capital into a special account that exactly follows (or copies) the trades of experts.
The typical arrangement allows you to select from a list of pros after reviewing their success rates and trading histories. Everything is above-board and fully transparent. The term copy trading indicates that one person, usually a newcomer to the markets, exactly copies the investment decisions of a seasoned professional. At any time, you can exit the agreement and go back to making all your own decisions about what to buy and sell.
The most obvious advantage of copy trading is simplicity, especially for people who don’t have time or energy to do research about the securities markets. They’re happy to put some of their money at stake and follow the precise buying decisions of someone who has years of experience. Not only can you save time, but you’ll also learn how experts do their thing. The educational aspect of copying is often overlooked, but it is an ideal way for new traders to learn the ropes and see how pros operate.
Additionally, you can gain a high degree of diversification by copying several experts. This kind of strategy would be impossible to achieve if you acted alone. Likewise, when you follow the actions of seasoned professionals, you gain access to international markets of all kinds. That means you need not specialize in how to deal in several asset classes. Instead, you can opt to follow one expert in each area, like cryptocurrency or forex, that interests you.
Those who don’t pay attention to what’s happening with their accounts can suffer losses, even when copying expert traders. That’s because the leader might be using a large amount of capital and can thus sustain a draw-down or temporary loss. If your investment is too small, it might suffer a permanent loss. Keep in mind that hands-on traders are not good candidates for opening copying accounts. Copying entails putting your capital in the hands of someone else, at least temporarily. That’s not an ideal technique for everyone.
Do Periodic Reviews
As any successful business owner can tell you it’s imperative to do regular performance reviews. No matter how well or badly you think you’re doing, stop every so often and do a deep analysis of your performance. In many cases, you’ll need to compare the results of profits earned by following multiple experts. Some will be better than others. Avoid the temptation to only follow the top experts. That’s because some pros are highly successful for a period of time and then experience dry spells when their earnings don’t remain so high. Doing a monthly review of your all-around performance will give you a clear idea of whether you want to continue following the same experts or put others on your list of favorites.