This business technique is relatively new in the field of trading techniques and is known to have originated from algorithmic trading, along with mirror trading around the beginning of this century. The procedure has found its increasing fame among new traders and brokers who copy seasoned investors with a successful trajectory in business.
Copy trading enables traders to link certain portions or percentages of their funds to an investor that they look up to. The investment done follows strict proportions and it is totally up to the traders if they want to withdraw their funds at any point.
How does this function?
Very likely as the name suggests, copy trading allows you to replicate the work and position of other traders in the market. One feature that differentiates this from the regular trading, also known as social trading, is that this technique is not dependent on the databases provided by other traders but their actions. In this case, the trading platform that you use provides you with an automated system in order to help you imitate the work of other traders.
Moreover, unlike mirror trading, all the executions of the copied investor, such as opening or closing a position, taking profit orders or assigning a stop loss, are reflected in your account. These replications go by the proportion of investment of the trader and the percentage of funds that you trade on him or her. This trading technique is known to benefit both the copying and the copied traders. While on one hand, the copying trader is directly benefited by the growing statistics, the copied trader also receives monthly advantages for his performance. The copying trader also has the freedom of closing the deal at any given point or managing the trades that have already been replicated without being held in charge of any monetary sum.
Mechanism of copy trading
The first step involves choosing a trader in your suitable market after careful analysis of their career trajectory. Make sure that you’ve a clear understanding of their business statistics and overall strategy up to the current times. Copy trading will allow you to copy all the open-ended transactions of this particular trader to your account. This is mostly carried out by linking a major part of your business portfolio to a part of the trader that you choose. All actions of the said trader up to the date and henceforth are automatically copied to your account.
After the above-mentioned procedure is complete, you are further prompted to invest a percentage of your portfolio in the trader of your choice. Typically, in most cases the percentage of investment in any trader while copy trading has been found to be approximately 20% of the portfolio. However, if this is your first time in the trading field, you might not want to take too many risks. Even if the statistics of your chosen trader meet your expectations, it is suggested that you go for a maximum of 10% of your business funds. Further, make sure that you’ve carefully gone through the trading site’s policies and regulations before you start investing your funds.
