Understanding the Concept of Copy Trading

Are you thinking about investing in financial markets? Do you think you could make an investment career by putting some money into forex currency pairs or cryptocurrencies?

Of course, you have many ways to do that online today. The best part is that you can trade online in a variety of ways. You could trade ETFs, futures, CFDs, etc. You could also trade the assets in their original format if you want. But how do you pick the right trading platform? How can you make sure to have a long-lasting investment career?

Among many other ways, you have copy trading that can help you build an investment portfolio without requiring you to learn the ins and outs of trading. What exactly is copy trading? How does it work? Let’s take a look.

The Concept of Copy Trading

As the name suggests, this is the method of copying trades, but whose trades do you copy? Who copies the trade? So, if you want to be an investor, you are going to be the one copying trades. On the other hand, you have experienced traders whose trades you will be copying. How will you copy the trades? You will use a copy trading platform on the internet.

The copy trading platform provides you with access to a list of traders that are considered some of the best on their broker platforms. Yes, you are connected to the brokers through the copy trading platform.

When a trader enters a trade, you enter that trade automatically and that’s where the idea of copying comes from. It is important to note here that you don’t pay any commissions on your trades to the copy trading platform. When you sign up on the platform, you connect your broker account with it. All the service fees, commissions, etc. apply to you as per your broker’s regulations.

Tips before You Pick Copy Trading

There are certain things you have to keep in mind before you start copy trading. Remembering them will ensure you get the best results from this activity.

  • Pick a Trader after Thorough Research

Here is something you should know. When you join a copy trading platform, you can choose from hundreds of traders. These traders have been picked by the platform you have chosen. These are not some random traders just so you know. They are among the best traders among many broker platforms. Yes, they are on the broker platforms, just like the broker platform that you have to be on before you start trading. Don’t forget that you are connected to your broker platform through the copy trading platform.

You can see a list of traders based on their performance. They are ranked based on their past trading record, with the best ones being on top. At the same time, you can pick them based on their trading style so you can pick the one that goes well with your trading strategy. You should take your time before you pick one. This will allow you to go with one that aligns best with your trading strategy.

  • Go for Licensed Platforms 

There is no doubt about the fact that you can find dozens of online platforms for copy trading today. It was a new thing just a little more than a decade ago. However, things have changed today and it seems that everyone is trying to offer copy trading. There are certain things you can consider to decide on the right platform.

While you can look at other features, you should most certainly look at the regulation of the platform. Regulation is the most important thing and also the first that you should confirm before you decide to sign up. You can’t deny the fact that there are companies that claim to be the best but they are not regulated.

What does regulation mean? Well, the thing is that when a company is regulated, it is following the industry protocols and meeting certain standards of providing financial services. It also means that the company has gone through proper audits. Last but not least, you should be happy to know that regulation is there to protect your interests as an investor. Usually, you will find the regulation information on the platform’s website. If they try to give you reasons for not being regulated, you should avoid them.

  • Get Help from the Platform

The whole purpose behind copy trading is that new traders should be able to invest without getting all the training about trading. However, there are still certain things that will not make sense to you right away. In other words, you will need some time to understand them and only then you will be able to trade. This time-consuming process can be quite annoying for traders who are trying to get started as soon as possible. You should look for a platform that can automate certain things for you. For example, you can automate the process of picking the traders.

What happens is that some of these platforms have this feature of managing the traders on their own. They select traders based on specific metrics and put them in a group. You can pick the group based on your own preferences. You can trust these traders because they are picked by a certified team of portfolio managers at the copy trading platform. Not to mention they would even help you regulate and rebalance your trading portfolio when things start to deviate from the set path.

Final Thoughts 

Copy trading has emerged as a great way for modern traders to start investing without putting too much at risk and getting started even if they are not fully equipped with the knowledge of trading in financial markets.

It helps them automate the forex trading process and gives them access to the best traders across various brokerage platforms. As a result, investors can increase their chances of success as soon as they get started. You just have to make sure that you pick a regulated and licensed platform for your investment needs.

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