The forex market offers many investment opportunities and helps investors gain income from exchange rate fluctuations.
The most prevailing type of trading beginner investors perform is copy trading. This technique is popular among people who lack knowledge and expertise in the market and have limited time to commit to learning more about trading. Copy trading makes it simple for traders in the forex market to replicate positions other traders operate. Only because this strategy implies copying it doesn’t mean you’re cheating when using it. Buying and selling are automated, and you need to decide what method works for your account. You check the available positions and try to understand the reasoning behind the operations. When you identify the connection, you can close trades, open new ones, and control the result to work to your advantage.
What is copy trading?
Copy trading is a strategy new investors use to take advantage of the benefits the forex market offers, even if they are armed with minimal experience and knowledge. Copy trading is a branch of social trading that implies copying other investor’s account. Traders can do this manually or automatically, depending on what approach better fits their profile.
Before using this technique, traders need to connect a part of their portfolio to that of a trader they admire and replicate their trades. Then they follow whatever position the experienced investor closes or opens.
This strategy allows following more than one investor. It’s recommended not to risk more than 20% of the portfolio on a single strategy provider because copy trading doesn’t guarantee a safe win. Before using this tactic, it’s vital to analyze a particular market to determine if the strategy the trader uses works. Even when copying the methods of a professional trader, the risk is still high.
How does copy trading work?
This tactic works by relying on social trading systems and social networks. When one investor opens a position, they can share details about it with other people on their network, who can copy the position (or their automated trading systems can decide the strategy fits their requirements and replicate the trade without additional input from the new investor).
The primary investor who broadcasts their operations usually has experience in the forex market, and the copy trader lacks knowledge, so they replicate the first’s actions to gain income.
Copy trading is a popular tactic in forex because it allows for beginners to copy other more successful traders’ positions rather than looking out for strategies to approach the market themselves. When they choose to trade using this tactic, they invest with top social trading Forex brokers that allow using this strategy.
A list of secrets no trader will tell you about copy trading
Supposing you want to use this tactic to improve your performance, you need a computer or smartphone and a stable Internet connection. Check the brokers’ list that allows this strategy, choose one, create a trading account, download the terminal, pick the leverage, make a deposit and start trading. Here are the secrets all successful traders use when they rely on social trading to grow their wins.
Copy an experienced investor’s operations
Trading with the help of copy trading tactic seems simple. You follow multiple experienced traders on social networks, pick one of the forex brokers that offer CopyTrading platforms, make a deposit, and imitate operations. But this strategy implies more than meets the eye. If you want to use it successfully, you need to understand how it functions and how it can impact your profit. If you replicate the wrong operations and follow a trader who doesn’t close and open trades similar to yours, you can end up with an empty bank account.
Pick an investor who has consistent profit and an appealing chart. Don’t ignore the spread or buy at the chance, especially if you’re a beginner because the market is tricky, and you can lose your money. You can lose pips as quickly as you win them, so when you copy operations, don’t ignore the possibility of losing money.
When you select a trader to copy, consider your strategy, how often they place the trades, and the risk-to-reward ratio.
Don’t concentrate all your efforts in a place
You know the old saying, do not put all your eggs in one basket. It holds true when you use social trading to open and close trades. So, when you choose a trader to copy, apply these words and not risk everything on a single investor.
Your portfolio is safer and less vulnerable to unexpected changes in the exchange market if you replicate different experts’ trades. The secret to long-term profitability involves diversification. This tactic allows you to diversify your portfolio. Even if you perform a few transactions, they expose you to a wide variety of currencies and operations. Copy more than one trader to have success. You need to understand that even the most experienced investors have bad days and lose money. It’s inevitable, but you boost your chances to complete successful trades when you follow different traders.
Reinvest the profit
Copy trading is profitable if you know how to reinvest the earnings. Use the profit to place other trades, and even if your bank account doesn’t grow immediately, you’ll boost your income in time.
After you win, you can do two things: withdraw the money or reinvest into the system and expand your portfolio. It’s tempting to withdraw your profits the moment you win, but it’s more fulfilling to reinvest the funds into bigger trades.
It’s possible to make money from forex trading, even if the market is risky. When you reinvest the profit, make sure you have a strategy in mind. You cannot predict how much you make from buying and selling currencies, but you can use your past results to predict your future performance. And don’t ever let a bad day deter you from using this strategy because you can take control of your investments only if you embrace the market with everything it has to offer.