What is copytrading? A relatively new concept, copytrading allows those without in depth knowledge of Forex or commodities trading (Gold/Oil etc) to automatically copy the trades of more experienced traders, and profit from their ability to ‘predict’* market movements.
Forex Trading – The Basics
Trading on currencies has existed in one form or another since different currencies have existed. The main difference between ‘then’ and now, is ‘leverage’. Basically, this means that you do not have to have large amounts of capital to trade – you can gamble on a currency going up or down against another currency e.g. EUR/USD (euro/US $) without having to buy huge amounts of one or the other to profit.
But, making a profit from predicting changes in the value of one currency against another (or rising falling commodities prices such as silver), is a complex ‘game’.
As trillions of dollars are traded on foreign exchanges daily it is obviously profitable for some traders (the statistics include banks, and brokerages as well as ‘retail traders’ – individuals).
So how do you make a profit from Forex (Foreign Exchange) trading? There are many systems or methods of Forex trading that rely on developing strategies, which is a time consuming venture, demanding many hours of research and testing.
Copy-Trading – The Basics
What copy-trading does, is allow you to automatically copy experienced traders (when selecting traders to copy, you should always check how long they have been trading, and any other available statistics). You select a trader to copy, allow a certain amount of your account to copy a trader, then each time that they trade, your account will automatically copy their trades, and if they win, you win. Please note that this is a simplified explanation of the process, and that different copytrading platforms work in slightly different ways.
(You may have heard of ‘social trading’, which in essence is different, as the process is not automated. In its strictest definition it merely means using a social platform (such as FaceBook groups) to discuss potential market movements with other traders, or receive ‘signals’ and act on their advice, although this process is not automated.)
Copytrading has undergone huge growth over the past few years due to software/programming developments, but it is not a straight route to overnight riches. There are plenty of people who lose money, as they seem to think that they can deposit money, choose the best ranked traders, and sit back while the money rolls in. This can happen, but if you do not monitor your account, don’t be surprised if it doesn’t.
There are several copytrading websites available at the moment including eToro, ZuluTrade, and platforms that use mirror-trading software that can copy trades at various levels of automation.
Most of them offer demo accounts, so you get to try them out without having to register credit card details, or deposit any money. If you are interested in trying out copytrading, then a demo account is a good way to familiarize yourself with the website’s functions, and use it over an extended period to see if you have the ability to choose the right traders to copy, and most importantly, make a profit.
* Disclaimer: The reason that ‘predict’ is in inverted commas above, is that no system is foolproof – the traders that are copied by the various available systems will not always win, even if they have previously had high profit margins, there is no guarantee that they won’t lose in the future.