The trading scene is filled with a lot of risks, uncertainties, and losses. One single error in strategy may ruin a successful closing. This realization has made prospective traders, particularly newbies, scared of the world of trading in the forex market. How then can newbies reduce the risk of losses? How can they dive into the world of trading with their inexperience and make profits?
There are several methods to mitigate risks in trading but for this article, we shall explore a popular and effective method termed copy trading. We shall also be exploring its benefits and some downsides to it.
Understanding copy trading
Copy-trading has been in existence for almost two decades. And there have been a series of developments that have occurred from the time of using email signals and chatrooms till the time when trades can be automatically shadowed.
Its meaning can be easily deduced since its name is suggestive of its meaning. Simply, Copy trading can be defined as the act of copying other traders’ trades and their strategies.
What happens is that a newbie adopts the trades of a master trader as theirs so that when the person makes a profit, they make theirs too. This also implies that in cases where the pro trader experiences losses, the copier incurs losses too.
This form of trading would be useful in climes like Malaysia to encourage more participation in the forex trading system. The reason for this assertion is that a great percentage of potential traders harbor the fear of losses. With this strategy, new traders can learn new trading strategies by imitating the trading technique of pro traders.
Traders should note that in a typical forex copy trade scenario there are 3 stakeholders and they include
- The provider: This is the trader whose trade is being copied by other traders. They can also be called a signal provider or master trader.
- The copier: The copier is the trader copying the signal provider’s trade
- The Broker: This party is often referred to as the middleman. The broker is the one who provides access to the platform where the copier and the signal provider would connect.
Understanding the forex market may be a little overwhelming for novice traders. This is because there are a lot of market technicalities and trends for them to familiarize themselves with. And this takes a great deal of time and effort.
Copy trading allows them to bypass that time by relying on the expert strategies of pro traders. This is a win-win situation as they get to make a profit when their signal provider makes a profit and also learn the trading strategies that resulted in that successful trade. Also, in cases of loss, they can find out the defect in the strategy.
Traders should note that the concept of copy trading is not the exclusive preserve of novice traders. Expert traders who are seeking to learn new strategies or take a step back from their screens can benefit from this trading concept.
Traders should note that although the outcome of a trade is largely dependent on the trading strategy employed by the provider, they still possess a great degree of control.
Traders can close an open position whenever they detect a stop loss signal. They can also adjust certain parameters, particularly on risk control. An experienced trader would have a high tolerance for risk than a newbie trader. Making use of these parameters ensures that the trader is in control of how much he risks on a trade.
Making the most of Copy trading (steps and procedures)
As simple as the concept of copy trading sounds, traders have to follow the appropriate procedures to get the best results. The following is a list of steps traders must follow:
1. Choose a reliable broker
This is the first step in getting started. Traders should ensure they carry out a thorough research concerning the services offered by the brokerage company they want to sign up with. Questions bordering on the range of assets offered and the efficiency of the company’s client support should be satisfactorily answered.
2. Find a suitable automated copy platform
Oftentimes, traders are often directed to a signal platform by their brokers. Some platforms require money (usually in form of deposits) and some do not. Traders must ensure that the trading signals detected by their preferred platform must be commensurate with the current market reality.
3. Look at the signal provider’s stats
Once your account is functional, the next step is to look for potential signal providers. This step is the most important in copy trading. Traders should ensure that they take a detailed look at the stats of the signal providers. Important details such as their profit, losses, and risk profile should be assessed. (provigil pharmacy)
Ensure at the end of your search, that you select providers with stats that are commensurate with your trading goals.
Advantages of Copy Trading
Copy trading is gaining more traction by the day. And it’s not hard to see why with its numerous benefits, they include:
1. It’s a time-effective option
Becoming an experienced trader who makes informed trading decisions takes a lot of time and effort. Not everyone is willing to withstand the rigors of learning market signals, trends, and concepts from the scratch. Instead of novice traders waiting to learn the ropes of the forex market, they can depend on the potential of master traders to realize a profit.
Seasoned traders that are unable to study market charts constantly can also make use of copy trading.
2. Provides a learning opportunity
Copy trading is a great learning opportunity. This is because novices can learn new trading strategies that have been tested and proven. Pros can also improve on their trading skills and techniques.
3. Risk management
Copy-trading doesn’t make trading less risky but it gives traders some degree of control over the outcomes of a trade. Hence risks are kept at a reasonable level. For instance, traders can set a maximum drawdown level or define whether they want to mirror the trade size of the master trader or adjust the size of the trade relative to their account size.
Other benefits include the provision of income for persons qualified to be signal providers and also, the diversification of traders’ investments.
Final thoughts
This trading strategy like any other has its advantages and disadvantages. Traders should make sure they carry out purposeful research before adopting the techniques of a particular signal provider. Although copy trading allows the master trader to do most of the heavy lifting, copiers should not rest on their oars.
They should constantly monitor their trades because sometimes the signal provider may change their strategy. Failure to note this may culminate in a loss.
