How Does Copy Trading Work?
Unlike social trading, copy trading depends on other traders’ behavior rather than the knowledge they offer. To put it another way, copy trading helps you to repeat the behavior of other traders. You could copy a trader utilizing the automated framework provided by the site for the process to be called copy trading rather than social trading.
Copy Trading Mechanics
Copy trading links a portion of your portfolio to the portfolio of a dealer you choose. All of a trader’s open trades are copied to your account until you copy them. Also, any of their potential acts would be immediately reproduced to your account. You are asked to spend a certain amount on a particular trader. In certain situations, the sum cannot reach 20% of the portfolio. The trades’ sums are a measured proportion of the trader’s portfolio depending on how much you chose to spend. Assume your account balance is USD 1000 right now. You don’t have any available trades, so you’ve decided to pursue a trader’s lead. His statistics are promising, but you don’t want to put so much money into this because it’s the first time. That is why you have made a $100 investment (or 10 percent of your funds). One free exchange by the broker has been copied to your account.
The USD 100 you invested represents a percentage of the trader’s total portfolio. If his portfolio is USD 1000 (which we’ll assume for the sake of simplicity), so your contribution is 10% of his portfolio. If he does a deal for USD 100, you can make the same trade, so the money you spend from your account will be 10% of what he invests, or USD 10 if he supports USD 100. Since the mechanics are programmed, you won’t have to think about the calculations; the machine will take care of it for you.
Adding and Removing Funds
If you’re satisfied with how the trader manages your assets, you can quickly raise the price. When a transaction is copied to your account, you can spend more, increasing the earnings if the trade is good. However, this raises the costs, and, in the event of a losing deal, the losses would be more significant. It’s a smart strategy to diversify the portfolio to avoid putting so much money into a single trader. You will also raise or decrease your investment depending on the success of the traders. If you’re pleased with the outcome, you can aim to boost your earnings by growing your spending. However, you should still bear in mind that increasing your investment is a risky decision.
Depending on the forum you use, you will have various control levels until you start copying a trader. Other platforms have a set scheme, which ensures that if you start following a trader, the only thing you can do is avoid following them. There are, on the other side, more liberal platforms that encourage you to manage your funds manually.
For example, if you don’t like a trade or feel that if it’s kept open any longer, you’ll lose money (or lose even more), you can manually close it. In future parts of the tutorial, we’ll go through the numerous platforms in greater depth.
What Are the Benefits of Copy Trading?
Trading can be intimidating in general. It’s not simple, to begin with, and when you add charts and trends to the mix, it’s enough to send even the most excited newbie trader into a panic. Copy trading will help you overcome your anxiety. It enables you to start trading even though you have no prior trading experience. This way, you’ll be able to see what good traders do and why they do it. If they’re more talkative, they could also show you and offer you some pointers. This is a win-win scenario for all sides.
He who learns from his own errors is clever, but he who learns from others’ mistakes is wise. Sure, you’ve never made a trade-in in your life. However, depending on others’ achievements and mistakes, you will be able to see what succeeds and what doesn’t. After practice, you would be able to know what you need to know to become a broker. What you need is a little bit of time.
For a new trader, copy trading is a great place to launch. It encourages you to witness other people’s victories and shortcomings, as well as benefit directly from their errors. It’s a pleasant way to start making money on the stock market, but it’s not without danger.
Depending on how much influence you like over the activities, you can be highly conservative when picking a site. It would help if you also use caution when selecting a trader since you are entrusting a portion of your portfolio to an unknown individual.