What is Copy Trading and How does it work

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Copy trading is a form of financial markets trade where the investor automatically “copies” the operations executed by another trader. This form of trading is used by many people who wish to replicate the performance of more experienced traders. Unlike other forms of social trading, the investor does not have to give his/her money to the fund manager. As a copy trader, you open your personal trading account. You keep all the assets in your account and enjoy the benefits of all your earning. However, you must connect your account to your designated trader via a copy trading platform.

The beauty of copy trading is that you are in control of your funds. You do not have to hand your money to a third party trader. You only delegate the management of your account to another trader. You can choose to copy trade from one person or several.

Components Of The Copy Trading Market

There are many factors that come to play in copy trading. There are many versions of copy trading and a multitude of services offered by different platforms. Essentially, all copy trading platforms have the same basic components.

  • The Market

The main ground upon which copy trading was founded was the financial market. However, through time, copy trading has spread to stock markets, interest rates, indices, ETFs and now cryptocurrencies. Copy trading has performed well in the financial market thanks to the liquidity of the Forex trade. However, you may still enjoy copy trading in other markets. The important aspect is choosing the right trader to copy from and understanding your market.

  • The Broker

You can’t trade in the financial markets without a broker. You need to receive the operating signals of your model traders to make trades. For you to receive the signals via the Copy Trading Platform, you need a broker. In most cases, the brokers are also Copy Trading from more established traders. The concept is to establish a flow of signals from the best traders down to the rest on investors.

 

  • The Trader

Also known as the signal provider, is the investor at the top of the chain. The best copy trading broker allows you to observe and evaluate data of various top traders. Before you choose the trader you wish to copy, you look at their performances. It is advisable to take your time before settling on a trader. You can try several traders using a demo account to avoid following a poor trader.

There are different platforms that offer various advantages. Some systems allow you to evaluate the strategy while others only record the performance of the trader. It is important to accurately analyze the data provided. A good Copy Trading Platform provides accurately analyzed data visible to the smallest detail.

You should understand that each trader has a strategy. They all encounter loses and profits. The top traders usually choose a risk tolerance methodology that applies to their situation. Before you start copying someone’s trade, make sure you understand their goals.

 

The Copy Trading platform

The last and most important component of copy trading is the platform. Before the development of such platforms, investors who wished to use the expertise of other traders had to use mail lists or chat rooms. Today, there are many copy trading platforms available to different device users. Copy trading platforms allow investors to trade even when they are on the road.

The copy trading platform is usually concerned with two things. One is to act as the signal provider between the trader, the broker, and the investor. It is responsible for recording the trader’s actions and transmitting the signal down to the lowest investor through a series of brokers. Secondly, the trading platform regulates the particularity of each trade. For instance, if you have $1000 in your account and want to replicate trade with a $100,000 account holder, it would be very easy for your account to be burned. Your total account balance only represents 1% of your model trader’s account. For this reason, the Copy Trading Platform helps you replicate trades proportionally. Do not jump into trading without understanding the reality of your trader. It is your duty to give the signals allowing trade to take place.

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