What Is Copy Trading And How Does It Work Shifting Shares

What is Copy Trading and How Does it Work?
Copy trading allows traders in financial markets to automatically copy positions opened and managed by other traders. Copy trading means traders can copy specific strategies and ties a portion of the copying trader’s funds to the trader’s account that is being copied.
Copy trading is popular with those who don’t have the knowledge or desire to learn to trade for themselves, however it comes with risks that we’ll discuss in this article.
In this guide I’ll explain:
What copy trading means Who uses copy trading and why Whether or not copy trading works.
I’ll also answer some of the more frequently answered questions at the end to deepen your knowledge on copy trading.
What is copy trading?
Copy trading can be great for people who wish to follow traders with a track record of success.
The first step is to find a trader or investor with a track record you want to copy. The second step involves monitoring their strategies before committing real capital – thereby minimising risk.
It’s important to check that the account you want to copy hasn’t got lucky by going all in on a few trades! You can do this by looking at their portfolios and also past trades.
Copy trading isn’t a magic bullet. Rather, it’s a short-term strategy designed with day or swing trading in mind. I also need to point out that copy traders usually work in volatile or complex markets like forex. This is because large inflows of capital following the same account can move the price – therefore liquid markets are a necessity. For this reason, leverage is often used in copy trading. Leverage is also considered high risk as most retail investor accounts lose money when using leverage.
Can you generate strong revenue by copy trading? Yes – but not without risks. Also remember that another investor’s track record of success doesn’t automatically mean you’ll enjoy the same returns. You also need to factor in potential volatility too.
So, how do you copy another investor’s strategy? Let’s look at the process.
How to copy trade.
There are many ways to get started. I’ve listed a few of them below.
1. Follow more than one trader.
Putting all your eggs in one basket is a high-risk strategy. That’s why if you’re going to copy trade (I personally wouldn’t) then look at following several accounts – each of which will adopt different approaches to make money from their chosen markets.
Think about it this way: risking all your capital on one strategy, asset, or position is like betting everything on black in a casino. You could lose it all in a single roll of the die.
Instead, spread your risk by diversifying your capital.
2. Learn different financial instruments.
Copy traders use various financial tools. A short-term intraday trader will think short-term. Contrastingly, a position trader will consider the bigger picture. Some will be extremely active. Others, less so. For example, one trader might specialise in trading GBP/USD, or EUR/USD.
3. Speculate on price movements.
Maybe you’d like to receive automatic notifications of trades then copy those transactions for analysis. You could do this by setting up aCFD trading or a spread betting account. These tools let you speculate on the price movement on an asset – even if you don’t own it.
Is copy trading a good idea?
Personally, I think copy trading is a bad idea. Why?
If you want to trade, then learn to trade with your own trading strategy. If you don’t want to be involved in trading or investing then buy a low cost passive tracker fund.
This means you’ll get the upside of the financial markets without having to be involved.
Does "copy trading" really work?
The system works but isn’t infallible. Even experienced traders can lose money if their approach is unsuccessful.
For example, a trader might:
lose money if the product or asset they’re trading rapidly (and unexpectedly) declines.
When copying you’re only as good as the investor you’re emulating – so try to exercise judgment wherever possible.
Is copy trading safe and profitable?
As I mentioned, even successful traders lose money. So, copying them isn’t a fool proof strategy. To help you decide whether share4you copy trade trading is right for you, I’ve listed some pros and cons below.
The pros:
If trading isn’t your day job you can make money without constantly monitoring market movements You could make a living from the financial markets – even without experience Copying lets you experiment with different styles so you can find an approach best for you.
The cons:
A successful trader today might have been bottom of the leader board yesterday The investor you’re copying could start taking bigger risks – are you okay with that? You could lose capital due to twists and turns in the market or provider error.