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What is copy trading, and how to copy a trade?

In its simplest form, copy trading is when a trader copies the positions of another, usually a more experienced trader with a proven track record. There could be many reasons a trader might want to start copy trading, such as lack of experience or insufficient time to monitor the markets.

Throughout this article, we’ll explore everything a trader might want to know about copy trading in more detail.

In this article

    Key takeaways

    • Copy trading allows traders to copy positions of more experienced traders automatically or semi-automatically, which might give them a chance to profit in the financial markets.
    • Copy trading can be seen as a branch of social trading, focusing on the trades a copy trader takes. Social trading focuses more on community engagement and discussions among traders.
    • Copy trading allows traders to adjust their risk levels and investment amounts.
    • Copy trading platforms are transparent, providing you with details from the copy trader, such as risk-to-reward ratio, performance level, and service fees.
    • Copy trading presents the same risk as any other trading, such as market volatility, market conditions, and slippage.
    • Traders have a variety of instruments available, such as forex, stocks, and other emerging markets, for example, Web3, blockchain, and artificial intelligence.

    What is copy trading?

    What exactly is copy trading? To answer that, we must first go back to when it all started. Before copy trading, there was mirror trading, which allowed traders to copy trading algorithms and strategies developed by other traders through automated trading.

    From there, some traders started copying the actual trades of other traders instead of only their strategies, and thus, copy trading came into existence.

    Copy trading is the same as social trading; the only difference is social trading has a social media approach to trading, whereas copy trading is more automated, meaning your account is connected to a more experienced trader account. Whenever they open or close a position, your account automatically opens and closes the same position. 

    However, closing the position automatically is not always the case, as the copying trader can manually close the position on their account. Regarding opening a trade, there are two choices: automatically or semi-automatically. We’ll get into more detail regarding the automated and semi-automated process later.

    However, whether a trader chooses an automated or semi-automated approach depends on them. Also, keep in mind that even though you might follow a trader with more trading experience, your risk remains the same.

    How does copy trading work?

    Before deciding which trader you want to copy, there are a few aspects to look out for, such as the number of followers they have, their risk-to-reward ratio, the amount of funds they trade with, their overall performance, and the amount of time they’ve been active in the market.

    The choice you make will all depend on your personal preference and goals. Another factor is deciding on the amount of investment because there is still risk involved with copy trading. You could always choose to add more funds or take some away, depending on the performance of your chosen trader.

    Regarding taking trades, there are two ways traders can participate in copy trading: automatically and semi-automatically, as mentioned above. Below is a breakdown of the difference between automatic copy trading and semi-automatic copy trading.

    Automatic copy trading

    After you decide which trader you might want to copy, you can automate the trading process. This means every time the copied trader opens a position on their account, the same position will open on your account. Once the position is opened, you can either let the copied trader close their position, which will automatically close yours, or you could close it manually.

    Semi-automatic trading

    This process works a bit differently; you do have control over whether or not you want to proceed with the trade taken by the copied trader. When the copied trader opens a position, you have a choice whether or not you want to open the same position. Once the position is opened, the same as the automatic process, you can close it manually.

    What are the benefits of copy trading?

    Copy trading does have some benefits, which are discussed in detail below.

    • You still have complete control over the amount of risk you want to take per trade. Even if the trade you might follow uses bigger lot sizes, you still have a choice to downsize your positions.
    • Any successful trader would tell you that success doesn’t happen overnight; it’s a long journey, and some inexperienced traders probably don’t have the time to analyse the markets and look for trades daily. But, with copy trading, you now have an opportunity to trade alongside more experienced and knowledgeable traders. Just remember to have your risk parameters set up.
    • Copy trading networks are transparent, meaning all the traders you can copy with their profits and losses, fees, number of trades, and overall performance are clear to see.
    • Copy trading might also provide you with the opportunity to diversify your portfolio. For example, if a more experienced trader has been participating in the market for a while and has their own strategy for swing trading (longer-term trading) in place, but they see a copy trader who had success in short-term trading, they could start copying that trader for short-term opportunities while still focusing on their swing trading (longer-term opportunities).

    What are the risks of copy trading?

    Now that you have more information about the benefits let’s look at what risks are involved with copy trading.

    • Choosing the right trader is more than just looking at their monthly returns. Other factors need to be considered, such as the amount of time the trader has been active in the market, what instruments they trade, and the initial investment amount they trade with, to name a few. All these things might need to be considered, so choosing one that best fits your goals might take time.
    • Risk is always involved with trading, and copy trading is no different. With copy trading, you have no control over the trades taken by the copied trader; you can only control the amount of risk you want per trade unless you decide to process the trades of your followed trader semi-automatically. 
    • Market risk refers to the multiple conditions that can come into play during the hours the market is open, such as high volatility or when important news comes out. Other factors to consider, such as slippage or platform outages, could make the risk even more significant.
    • The last point is something we’ve mentioned previously: the fees that need to be paid to the copied trader; it can either be a subscription fee or a percentage of the profits you could make.

    Before choosing which trader to copy, you might want to start with which instruments you might want to trade. As there are many instruments to choose from, each with its own set of liquidity, volatility, and market exposure, some traders may have their own speciality.

    Below, you’ll be able to see a breakdown of some popular instruments copy traders will trade.

    Copy trading with forex

    Forex, or foreign exchange, is arguably one of the most popular instruments with copy trading. Most traders in this sector usually trade with a short-term strategy. Forex trading requires a good understanding of technical analysis.

    For those traders who lack knowledge of the forex market, copy trading might be the alternative option.

    Copy trading with shares/stocks

    The stock market has many companies listed on the live markets. And because of the vast number of companies, traders might use different strategies, from a short-term approach to a longer-term one. 

    The choice behind the strategy might come down to various factors, such as market conditions or the industry of the company's stock.

    If you have certain goals in mind for your trading or investing, you might want to look for a trader with similar goals.

    Copy trading in various market sectors

    Stocks and forex are not the only sectors in which copy trading is available. There are various market sectors in which copy traders participate. Some more popular ones include energy, finance, and healthcare, while some emerging sectors that are gaining traction include crypto, Web3, blockchain, and artificial intelligence.

    Social trading vs copy trading

    Copy trading and social trading are the same, with subtle differences. Social trading was first introduced when a popular broker launched their own social trading platform, which went viral among traders.

    As previously mentioned, copy trading presents the opportunity to link your account with another trader’s account, allowing you to copy their trades. So, when the copied trader opens and closes a position, your account will automatically open and close the same position. You also have the ability to close a position manually.

    Some platforms also have the option to semi-automate the process, which means if the trader you might be following opens a position, you get to decide if you want to proceed with the same position.

    On the other hand, social trading has adopted a social media approach to trading; you can get to create a profile for yourself on a social trading platform. And just like any social media network, you get to follow other people, in this case, other traders. 

    Every trader's profile is transparent, meaning you can see their bio, performance over time, profit and loss ratio, and the instruments they trade, to name a few. 

    The traders you follow can share their trades, news, updates, or strategies to the social trading platform news feed. You can share your own trades, news, updates, or strategy to the news feed.

    Both copy trading and social trading are available through mobile apps.

    Copy trade terminology

    There is some terminology within copy trading that might be useful to understand; let’s have a look at what these are:

    • Fundamental analysis: This studies economic and political news to forecast potential price movements.
    • Technical analysis: This is the study of the historical price action of charts to try and predict potential price movements.
    • Slippage: Slippage is the difference between the order price and the execution price, which could change because of market volatility or outside market factors such as trading platform outages.
    • Max drawdown: This can also be called a hard stop, an indicator which looks at your portfolio's biggest loss over a certain period of time before it starts to recover. This will also show you how much loss your account faced over a specific period. Unfortunately, it won’t tell you how often losses occur. This is because it’s measured in a percentage value of your entire account, not just a specific trade. 
    • Hard stop level: Once a drawdown activates this level, any and all trades will be closed, and copying will be suspended.
    • Soft stop level: The user inputs this level on their account, and once a drawdown reaches this level, the copying of future trades will be suspended.
    • Warning level: The user will input a percentage in the ‘warning level’; once a drawdown reaches this level, they will receive a notification on the app informing them that this level has been reached.
    • Mirror master risk: When copying a trade, the mirror master risk will adjust your trades’ size to match your account's size to keep the risk percentage the same as the trader you might be copying.
    • Mirror master size: This will copy the exact size of the trade the master trader executes. The mirror master size function will copy any trades regardless of your account size. For example, if the trader you might want to copy buys £40 worth of silver, this function will also buy you £40.
    • Fixed size: Before you start copying trades, you get to set a fixed size, which means all trades will be fixed to that one trade size.
    • Proportional by equity: This means the trade size will match the traders' size in proportion to the equity on your accounts. The copier can reduce or increase their exposure to the size of the trades they might want to copy by setting a value at the start of copying.
    • Performance fee: It is a percentage that needs to be paid to the copied trader based on the users' profits. These are only paid above the highwater mark.

    Copy trade with Trade Nation

    Trade Nation does offer you the ability to copy trade. Let’s take a quick guide on how you could go about this.

    • Create an account: On our TradeCopier app, create a profile by filling in your details, such as email, password, first and last name, phone number, and country of residence on the app. After selecting register, look at your email for confirmation and return to the app to log in.
    • Link your MT4 account: Start by selecting account and link account. You will be prompted to enter your MT4 account number and password. Choose whether you will be copying or providing signals. You can only choose one per account or TradeCopier profile.
    • Edit profile: Start by selecting the account, then scroll down to edit ‘account’. You can edit your signal name, image, first and last name, and search handle.
    • Search a signal: Start by selecting ‘discover’, then the search box. Then, enter the user, friend, or trader you’re looking for.
    • Copy a trader: Start by selecting discover, search or select the trader you might want to copy. After choosing the trader you want to copy, you’ll see the fees charged, the number of copiers, and followers. Select copy signal, then select your trade size (you can set the fixed size, mirror master size, and proportional by equity at this stage). Select round-up to minimum trade sizes, ensuring you don’t miss a trade (this is optional). Then, decide whether you would like to 'copy existing trade', ensuring that any open trades will be copied (again, this is optional). When that’s all done, select agree and copy. Remember to read the authorisation terms and conditions, confirm and select OK.
    • Set drawdown: Select max drawdown after copying a signal. Here, you can set a warning level, a soft stop level, or a hard stop level. When that’s finished, select agree and confirm.
    • Edit copying: Go to your account and select 'who am I copying?' Then, you can select the trader that you would like to edit. Select 'edit copy' and adjust the copy trading settings. When you’ve finished, select update.
    • Stop copying: Go to your account and select 'who am I copying?' Select the trader that you would like to stop copying. Select 'edit copy', then select stop copy, and the copying will be suspended.
    • Unlink trading account: Go to your account and select settings. Select account information and then select unlink account. After you’ve chosen that, select yes, and the account will be unlinked.
    • Set signal fee: Go to your account, link your MT4 account and select Provide signals. Select 'I want to charge a fee' and set your percentage fee. When that’s done, select agree and update.
    • Edit/reset drawdown: Go to your account and select max drawdown. Set the new warning, soft, and/or hard stop levels. You can also reset the levels to default. When done, select agree and confirm.

    People also ask

    What is the difference between copy trading and mirror trading?

    Copy trading and mirror trading have some similarities; however, there are also some aspects where they differ. In copy trading, you are copying the trades of another trader directly while having the option to adjust your position size and risk level.

    Mirror trading, on the other hand, you are copying not only the position of the trader with the exact position size but you’re also copying the strategy and algorithms developed by numerous traders.


    Can copy trading be profitable?

    There is a chance for copy trading to be profitable if you choose the right trader to copy. However, any trading, including copy trading, is risky. It doesn’t matter if you pick a trader with positive results; every trader goes through losses. You could decrease your position size, limit your risk level, or even choose multiple traders with different strategies to copy in order to mitigate the losses.


    What is the minimum amount required to copy a trade?

    There is no minimum required amount, although many brokers might specify a minimum amount you might need to start copy trading. If you decide to start trading with a small amount, it might be best to choose only one trader to copy, limit your position size, and reduce your risk level to keep your margin positive. You’ll also need to remember the fees charged by the copy trader.


    Do I need prior trading experience to engage in copy trading?

    There is no rule that you’ll need any previous experience to copy trade. However, it might be wise to do solid research to understand various financial instruments, market conditions, leverage, and margin requirements. But for the most part, copy trading is a way for inexperienced traders to use the knowledge and expertise of experienced traders.


    Is copy trading too risky?

    Any trading involves risk, even copy trading. With that said, you have complete control over your account, so you get to decide how much you want to risk per trade. 

    You could research the various traders you might want to copy to see their trading history, performance level, and risk-to-reward ratio. This will give you a better understanding of the type of trader they are.


    Does copy trading actually work?

    Copy trading is an easy way for inexperienced traders to use the knowledge of expert traders. While copying their trades, you still have control over your account and the outcome, meaning you can close a position if you don’t feel comfortable with its direction and adjust your position size per trade.


    Can you lose money copy trading?

    The possibility of losing money is always present in trading. This is why you might want to consider trading with money you could feel comfortable losing while also limiting your position size per trade. You could factor this into your risk management strategy.


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