Copytrading has been getting a lot of attention in recent years. The strides made in technology have made it easier and faster to trade. Social media has made market analysis and financial news just a few clicks away.
Forex copytrading is known as mirror trading, social trading or auto trading so be on the lookout for these names as well as you explore this relatively new financial frontier.
What Is Copytrading?
Simply put, it is exactly as the name says. You copy trade. You find the live investors that you want to follow, and you copy their forex signals or real-time forex trades. This sets up your system, so you automatically copy their trades into your brokerage account.
Are Forex And Cryptocurrency Copytrading Legal?
The good news is that copy trading is legal in many countries. You should always choose a broker who is properly regulated. A regulated broker will ensure that all procedures are followed when opening your account. As such your trades will be legal once it is allowed where you live.
If you live in the United States, you would be pleased to know that copytrading is legal once you choose a broker that is certified by either the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC). IF you are interested in crypto copy trading your broker must be licensed by FinCEN and registered with the Money Services Business. We advise that you do your due diligence and make sure that your broker is qualified on all fronts.
All you need to get started as an individual investor is a Letter of Direction. It gives your broker authorization to automatically copy trades on your behalf. A Letter of Direction gives copytrading the same status as a self-directed brokerage account.
In the United Kingdom, a bit more is required. Brokers need to acquire additional money management licenses in order to legally participate in copy trading.
How Does Copy Trading Work Exactly?
Basically, investors follow the trades that they perceive to be lucrative via social media trading platforms. They then copy the trade using copy trading software. Hence the name auto-trading.
You see you make absolutely no decisions regarding the trade. You rely on the experience and expertise of the professional trader. As such they reap identical returns as the professional trader that you have copied.
Each copytrading platform has customized settings that you can choose from. These are in place to protect investors. You can choose how much you wish the invest and which trades you want to copy.
It is a great way to invest if you are new to trading and the financial markets. It’s simple and easy to begin!
How Do I Copy Trade Safely?
When you settle on a social trading platform, you need to pay attention to security arrangements.
The following tips will help you to trade safely:
Transparency is the keyword here. We have created a checklist to make sure that you get the best copytrading experience.
A good social trading platform should have all of the following:
Research Your Traders
You should start with their trading history. In order to discover how successful your trader you need to look at the trading history that has a record of all the trades that a trader had ever done. This way you can decide if this trader’s strategy suits your needs.
Book Of Commissions (BOC)
The BOC shows the performance of the stock price. You can monitor how the price has changed over time. This will help you make an informed decision about which trades are best to copy.
So, as you may have guessed traders who are copied earn money. You should find out how much they make or the benefits they gain if their trade is copied.
Check For Fees
You will have to pay fees to follow trades. They should be small and infrequent. If large sums of money are required to follow trades, you should consider this a red flag.
Find traders who are trading in your price range of intended investments. A solid social trading platform will have an adequate trader selection to choose from.
Investment Product Selection
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Choose a social trading platform that has a diversified portfolio with several products for investment (stocks, ETFs, etc).
License And Regulation
Make sure that the social trading platform is licensed and regulated. Also, check to make sure that they can be reached by the customer service numbers and email addresses provided. Also make sure that they can communicate with you in your language. Automatic live chats are simply not enough when you need to discuss matters of finance.
Is Copy Trading Lucrative?
Naturally, it depends on a few factors. Copy trading is not brand-new. People have been using this investment tool for roughly 10 years. What we can say is that in order to enjoy a measure of success, you need to follow some rules:
• Get yourself a regulated, trusted broker. Do your research so that you choose the right one.
• You need to put in the time and effort to make money. You see even though the system is automatic. You can simply start you account and wait to collect your money. You still need to monitor your investment. As such be prepared to devote time and energy to the process.
The results of high performing traders are quite enticing and of course, that’s exactly what you want. However, there are tools available to traders to manage risk and to do wholesome analysis. These may differ from platform to platform.
Databases may be set up differently and come with their biases. They may be programmed to track the best performing trade or the most recent trade.
Sometimes, investors try a new strategy that does not line up with the historical performance of the trades that have been followed.
So, while you may make money from copy trading, it is not as simple as it appears in theory.
How Do I Choose The Best Copytraders?
Of course, when you decide to try copytrading, you will want to know that you are giving yourself the best chance to earn. So, you will need to know what to look for.
• The best traders usually have the most followers- So pay attention to their social media pages.
• The best traders have established performance records, you can get a sense of how a trader is doing by the monthly trading results. We recommend looking at them for maybe a 6 -month period, so you get a sense of the success rate.
• You need to know what your financial goals are so that you can choose the trader that offers the right diversification balance for you.
• Look at all the performance metrics associated with the trader. You may be tempted to zero in on just the returns but there are other factors to consider like no. of trades placed, the average trade duration and profit and loss data.
Our Top Forex Brokers For CopyTrading
Of course, we have a favorite, We are very impressed by the performance of eToro.
eToro is a user-friendly copy-trading platform that does forex and crypto copytrading. Traders can replicate trades of investors using approximately 2300 instruments. These include forex, Contract for Differences (CFDs), exchange-traded securities and cryptocurrencies.
This platform is regulated and was founded in 2007. That’s over a decade of experience. It has proven itself to be safe for trading CFDs and forex.
eToro combines copytrading and self-directed trading with great success. It is slightly more expensive than other trading platforms but it’s worth it.
Our runner-up is Copy pro traders. They specialise in crypto copytrading as well.
How should I Go About Choosing The Best Trading System For Forex Copytrading?
Choosing the best trading system is really about what you want. You need to know how much risk you are willing to take for your investment goals. As such the trading system that appears to be the most profitable may not always be the best fit for your needs.
If you are a conservative investor, choosing a system with a lower average loss per trade may be better for you needs than average profit.
An investor who is more inclined to take risks may choose a more volatile trading strategy, while there may be big gains. There may also be the chance of huge losses.
Most modern copytrading forex platforms have 100s-1000s of signal providers. And as the old saying goes the more choices the harder the decision. Sometimes it’s difficult to zero in on who should be followed.
Our best advice is to take your time, do your research and start with a small investment. Never invest more than you can afford to lose.
So now that you have a better understanding of copytrading, and you know that there is a level of risk involved. We invite you to explore the world of copy trading and the rewards it has to offer.