Copy Trading Guide: Can Copy Trading Make Money?
To be successful in forex trading, it is believed traders should take time and effort to build excellent trading skills. However, with the development of technology, we can transform trading skills into intelligent trading systems, where investors can satisfy their trading needs by following others. “Copy-Trading” is an innovative forex trading model.
Copy-trading, also known as mirror trading, is an investment strategy that automatically copies the positions and trades of other traders, which saves investors the time to dig into the complicated financial markets. Such a mature and low time - cost investment, even slowly replaced the traditional financial products.
This article introduces how copy trading works, how to make money via copy trading, and frequently asked questions.
What is Copy Trading?
Copy-trading allows investors to copy positions opened and managed by another individual. Investors can automatically follow the trader’s actions by simply deciding how much to invest, whether it is the positions that the trader has held in the past (which can be eliminated optionally), or the positions that he will take in the future
Investors do not need to look for things to invest in, as copy trading relies on the trader’s expertise, which also means that the investor will follow the gains and losses of the trader.
How to Copy Trade?
- Use the tools provided by the platform to find the desired traders, such as profitability, level of risk control, number of followers or return on investment, and so on, which are all key points of reference.
- Decide investment amount - Since investors can follow different traders, they can use their money flexibly by choosing traders with different styles. Some traders have high risk and high reward, while others have low risk and low reward, and investors can invest a different amount of money into different strategies to form a unique portfolio
- The platform will automatically copy all positions in the trading account or positions selected by the investor.
- Add funds/portfolio consolidation - If a trader followed by the investor is doing well, he can invest more in this trader either by reducing the amount put on a trader who is doing poorly or by injecting more money, so as to maintain the diversity of the portfolio in the account.
After selecting the traders, you want to follow, investors can choose one of three trading modes
- Manual trading: Most similar to normal trading, you can determine which traders to follow and which trading positions you want to replicate.
- Semi-automatic trading: You can look at all the positions of the trader you want to follow and decide whether you want to copy the trader's position or build a position using your own trading strategy.
- Automatic trading: Select a trader that is appropriate for your risk profile, and all or part of the trader’s previous trading positions and future trading positions are automatically replicated.
Can Copy Trading Make Money?
Whether copy trading can make money largely depends on the traders that investors choose to follow. If the investor only follows one single trader, whether the trader has excellent trading skills and trading strategy will be very important. If the portfolio is more diversified, it will effectively help investors avoid the risks and ups and downs brought by the financial market, and investment will be more long-term.
Copy trading allows investors to focus on the operation style of different traders, while a successful trader should have professional knowledge and exceptional trading strategy, so as to attract the attention of investors, who can learn from the operations of successful traders.
Although some of the best traders are offering the mode of copy trading, their performance can be unstable when they are in poor condition or in special market conditions. Virtually all copy trading is not guaranteed to be profitable because no trader has a 100% chance of winning. In the long run, there will always be questions about the continued profitability of traders, as even the performance of smart trading fails. In the event of a sudden market change, such as a Black Swan event, some traders or systems may suffer significant losses, which cannot even be made up by past gains.
There are some traders who do not have the strength but only offer copy trading service for a profit, then the followers who do not try to think independently will suffer the loss.
Therefore, copy trading is only used by investors as a way to spread risk, or as a reference for entry and exit, or even as a reminder of the market. When it comes to trading, investors still need to make their own judgment and build positions, even if they don't have the tools to do so.
FAQs on Copy Trading
1 / Is the risk of copy trading lower?
The risk of mirror/copy trading is not reduced because the trader is engaged in investment activity and the nature of the investment itself carries with it certain risks and rewards. As with any investment in financial markets, copy trading exposes an investor's money to risk. No investment is a sure bet, let alone following the decision of others rather than your own.
2 / How do I choose the trader I want to follow?
It takes time to select a good trader to follow, which requires not only long-term monitoring but also consistency between the trader's risk tolerance and the investor’s risk tolerance. Moreover, if the investor wants to form a portfolio of multiple traders, it will definitely take more time.
Investors also need to pay more attention if the positions held by the trader lack liquidity, which not only increases the holding time but also has the execution risk of closing out the positions.
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Risk Warning: The above content is for reference only and does not represent ZFX’s position. ZFX does not assume any form of loss caused by any trading operations conducted in accordance with this article. Please be firm in your thinking and do the corresponding risk control.