Building a portfolio can be difficult. With so many successful companies around the world, selecting the right strategy is sometimes a tall order. The truth is that the world of trading in general is a complex one that demands time and careful attention. Not everyone has the schedule to accommodate this approach, however, and even those who do find themselves in over their heads at some point.
For many, the solution to these issues is copy trading. This practice allows even newbie traders the opportunity to make smart, informed bets — but it is not a foolproof method. This article will explain some of the pitfalls and benefits of copy trading as well as offer a few tips about the copy trading process.
What is copy trading?
Copy trading, also known “copy cat trading”, is a method that allows inexperienced, or simply less experienced, individuals to copy trades placed by more experienced and skilled investors. Have you ever copied someone’s homework? The copy trading process is fundamentally the same, but without being “against the rules”. Less experienced traders follow successful traders and mimic their trading work.
When paired with deeper knowledge about forex trading from industry leader ForexFraud, whose information is designed to protect investors and traders from forex scams as well as fraud, copy trading can sometimes be a great option for players who are new to the scene.
Is copy trading difficult?
Copy trading is not overly difficult, but it does require time and attention to detail to be a successful trading method. You cannot mimic just anyone, after all, but rather someone with a proven track record, both past and present, of making smart decisions. Traders must also take some time to do at least basic research about the market in question as well as the businesses being traded. Here are a few more tips for smart copy trading.
Choose a reputable broker platform
Without a broker who cares about the quality and security of their platform, even the best tips will be unsuccessful. The first step to successful copy trading is selecting a reliable broker. Make sure the copy trading platform is listed as regulated and licensed with a history of transparent and honest business.
In addition, pay attention to the following elements of broker platforms:
- Pricing
- Execution
- Account fees
- Promotions
- Tools
- Additional features
- Education
- Commissions
- Reliability
Once you have selected the best platform for your needs, you can move on to more specific copy trading tips.
Pick the right trader
Choosing the right trader is a critical element of successful copy trading. You must pay attention to more than successful trades alone. Pick someone whose investment goals and style complements your own. If you are interested in cutting edge trades, for example, you probably shouldn’t follow a trader infamous for conservative decisions. The trader should also fit your market selections. A value investor, for example, is much different than a growth investor. You must understand where and how you intend to trade before you start copying strategies.
Do your own research
It might be tempting to mindlessly follow someone else’s trading decisions, but you should still try to understand the market. Copy traders do not always make perfect decisions and sometimes they make trades that simply do not align with your goals. This is especially important when first employing the method. Some traders might initially appear legitimate but are actually less-than-reliable in practical execution.
Pay attention to your account and your trader.
Success is not guaranteed
Some people favour copy trading because they see it as a no-fuss way to make successful trades. While this can be the outcome sometimes, it is equally likely to lose money. It is rare to find a trader who never loses, after all, and even copying the moves of the best will result in unsuccessful trades every now and then.
Remember to check up on your account
This was mentioned briefly above, but it is an important concept to understand. When you begin copy trading, you are entirely dependent upon the trader you are following and technology. The former might seem foolproof to you, but the latter is anything but. Internet connection issues, server problems and network crashes all have the potential to interrupt your trades.
Pay attention to your account to ensure that trades are being made accurately and in a timely manner.
If you have realistic expectations and understand the risks of the world of trading, then copy trading might be a great option! Keep our information and tips in mind as you get started.
