So, you want to get into financial investing and trading. Fortunately, with the rapid development of technology, trading financial instruments are now easier than ever. You can find plenty of tutorials online, in addition to opening your own trading account through your smartphone. This means you can theoretically track how your financial instruments are doing, anytime, anywhere. However, what if you are too busy or tired to take the time to learn how to trade? Or what if you do not want to constantly monitor how the markets are doing? In that case, there is another option for you – you can copy trade from someone else! It is definitely an easier and less time-consuming method to trade financial instruments.
If you are still confused about what this entails, keep reading below. In this article, we attempt to explore what copy trading is, and how to get started with it.
What is copy trading?
Much like its name suggests, copy trading, otherwise sometimes known as mirror trading, is a trading method where investors copy the trades of other successful and experienced investors. This means they will implement the exact same trades in their own individual accounts in real-time. This type is trading is primarily used in forex trading, though it can technically be used in any market. In the past, copy trading was only available for institutional clients, but now it can be used by any retail investor.
The premise of copy trading is that you choose an expert to follow. For instance, a trader you pick may then purchase 100 shares of a particular stock. Therefore, if you were using this strategy, you would follow that trader and also buy 100 shares of that stock. If they then move 3% of their portfolio into a specific stock industry, you would also do the same.
The main key with copy trading is choosing the kind of trader to follow. After you have found a trader you think best suits your goals, you can either copy trade on your own or through a copy trading platform. If you do it through a platform, it can let you select a trading activity to copy. After you have done so, everything else is performed automatically so you can sit back, relax, and let the platform trade on your behalf. Not bad for a first-time trader, right?
Whom should you copy:
Then that leads us to our next pressing question – who exactly should you copy? Here are a few factors you should consider when thinking about whom to replicate trades from:
- A trader’s investment track record
- Their number of open positions
- How long have they been trading
- Preferring kinds of investments
- The typical holding time of an investment
Of course, it is best if you choose a trader that has a similar style and goals to yours. For example, if you are someone who is more conservative and hedges against risk, you may want to copy someone who is also the same as you. If you are looking to find alternative investments, you may want to copy someone who trades in a wide range of financial instruments such as commodities, forex, or hedge funds. However, if your goal is to match the market rather than focusing on beating it, you should find a trader who mainly uses an index strategy instead.
Get started with Copy trading
So how do you get started with copy trading? While each platform will have its own requirements, terms and conditions, and user interface, the bare bones of copy trading are actually quite similar. Although, it is always wise to go over the terms and conditions of your trading platform before committing to it. That being said, here is an overview of the steps to get started with copy trading.
Select a trader
Always be sure to pick a trader that best matches your style and goals. To do so, you can use online tools to filter any available traders online. You also need to decide what is important to you and what your strategy is. For instance, what are you planning to get out of trading? What is your risk level and tolerance? Furthermore, ask yourself how you will rank traders – is it by their number of followers, risk level, or their total amount of funds? What about their return on investment? Always be sure to consider these factors before diving into the world of copy trading. Of course, you can always mix and match your criteria – you can choose a combination of them, so long as it matches your long-term trading goals.
Decide investment amount
Afterward, you will have to decide what your investment amount will be. You also need to think about how to share it among different managers. It is always recommended that you spread your assets out – never put all your eggs in one basket. As most experts say, diversification – whether it be by sector, asset type, or even geographic region, can help to lower your risk when trading. If you have chosen more than one person to copy, then you will definitely need to pick an amount allocated to copying them, and by how much. If you are unsure about how much to assign, there are always video tutorials online that can help you with that.
Choose copy trading platform
Next, you need to pick the copy trading platform to copy your trades on! (Assuming that you are doing it automatically and not manually). There are plenty of platforms to choose from, so always be sure to read up on what they offer, how reputable they are, and whether their customer service is good. You also want to check reviews and testimonials from other people who have used the platform previously, before picking one. The copy trading platform will then help you to automatically replicate a trading position into your account after you have informed them whom you are copying from.
This depends on how you are doing. But if you see that you are doing well – or that your selected trader is performing well – you can always add more funds. Vice versa, if you want to hedge against risk, you can always reduce your exposure and keep your portfolio diversified. A trading platform should give you the freedom to customize your trades and portfolio. For instance, you should be able to replace any existing trades at any time.