The copying of trading orders is perceived by many beginners as a chance to make an easy profit. Is it really the case? Let’s take a look in more detail at this new feature and then judge for yourself. What I can tell you right know is that the view is not a black and white.
How does it work
The principle is fairly simple regardless of the trading platform you use, eToro, Purple Trading or some other broker platforms offering copying of trading orders. A trading platform such as MT4 contains a window in which you can see a list of traders to copy. Usually, the window also includes a filter to help you make a right choice (e.g. showing e.g. return on investment in percent, risks, trader history, sometimes currency pairs on the trader’s portfolio or displayed in the trader details).
Once you have chosen the “right” trader, you can start automatically copying trading orders. Each platform includes a warning (supported by us, too) that the present earnings of the selected trader do not guarantee profit in the future. If you don’t want to copy trades you can switch at least the indication of being offered. It seems that forex trading has never been easier.
How to choose a trader offering copy trading
This feature makes sense when the person whose order you copy is someone whom you know e.g. your mentor. If this is the case copy trading is a great helper. Nevertheless, most beginners don’t have such a person in their neighborhood. They are fascinated by the easiness and potential profit they can achieve by copying the “best” at forex trading.
If, when choosing your trader, you rely on the filter remember a few things: A profit from 10 to 20% per annum is for a professional trader a standard and good result. Focus on traders who generate such profit levels for a long period of time. Why? Despite having more profitable traders in the portfolio, you should seek long-term profitability. A person making a 100% return within three months must either have had a small trading account or have risked a lot…. or both. Are you going to put your money at risk because of that, too?
One is never cautious enough when it comes to trading. Choose a less profitable trader who offers stability. Make the best of all analytical tools offered by the platform to learn the maximum about the platform such as offered assets or trading timeframes. Diversify your risks as much as possible. Copy traders with different portfolios (different currencies or indexes, commodities, shares etc.). Make sure that the instruments are not in positive correlation (both growing or falling). Such diversification would be wrong.
Copy trading: Yes or no?
Copy trading is a very useful feature but it is not a way to make you rich easily and quickly. The majority of beginners blindly follow the most profitable trader. This is a frequent mistake. Concentrate on long-term consistent traders, diversify your risks or copy someone who you know and trust!
Same as other trading activities, copy trading requires being careful when choosing the right broker or service. Don’t get lured by the very first offer! Go out to explore alternatives. It will help you avoid problems in the future.