Guide to Copy Trading

What is copy trading?

Perhaps your trades are not panning out how you had hoped, or your overall returns are simply not as high as you were expecting. Whatever the case, you might benefit from copy trading. Copy trading is an increasingly popular service offered by brokers which allows you to automatically copy all of the trading activity of another trader.

That person could be a retailer trader like yourself who is clearly making a success from their forex portfolio, or it could be a big-money institutional investor who has been involved in currency markets for decades.

Either way, attaching all or part of your portfolio to a successful investor could be a way to ride the coattails of a profitable trader without having to put in any extra effort. If this sounds interesting to you, read this in-depth guide to copy trading to find out more.

First, it’s worth breaking down exactly what copy trading actually is and that’s what we do in this section. As the name suggests, it is a service that allows you to connect your own portfolio with that of another trader and to automatically “copy” all of their activity.

This means that, when the trader buys a currency or opens a position, your account will do the exact same thing. If that same trader sells a currency or liquidates part of their portfolio, your account will automatically do the exact same thing.

Basically, if they win then you win. This also means that, if they lose, you will also lose. It is important to note that just because you have launched a copy trade, this does not mean that you have no control over your portfolio.

You will always have the option to ignore what the copied trader is doing and you can cancel or decline to buy or sell whatever they are buying or selling, should you so wish. The goal of copy trading is to make money from the successes of another trader, which means you need a broker that can show you the trading history and profits of any trader that you might wish to copy.

This form of people-focused investment is becoming increasingly popular, with many traders choosing to invest all or part of their portfolio in individuals, rather than on specific stocks or forex pairs directly. There are several pros and cons to forex trading, which we will go into in more detail down below.

Given that copy trading is a financial activity that involves a high degree of automation and algorithmic trading, you might have guessed that it is a phenomenon that emerged relatively recently. While copy trading as we know it emerged in 2005, a more “analogue” version existed before then, all the way back in the 1980s and earlier.

Back then, some of the world’s top investors and traders at firms like Merrill Lynch would send out weekly newsletters, informing their subscribers of the trades that they planned to open and close in the coming days. This primitive form of copy trading became so popular that, as soon as technology allowed for it, algorithmically-driven copy trading services were launched via online brokers.

The first forms of digital copy trading were referred to as mirror trading. They were popular because they allowed anyone to exploit the expertise of a successful investor with zero effort. Today, mirror trading refers to copying another trader’s strategy, rather than copying their exact moves.

How does copy trading work?

Let’s illustrate how copy trading works in practice with an example. Let’s say you are looking to diversify your currency portfolio with some Asia-Pacific pairs, such as JPY/NZD or AUD/CNY. You might not have much experience in this corner of the market, therefore, it might be a good idea to copy the trades of someone with a proven track record of success in this field.

You could use your forex brokerage platform to search for successful traders who are very active in Asia-Pacific forex markets. From here, you could select “copy” and then choose how much money or what percentage of your own portfolio you would like to tie to theirs.

Whenever this trader buys or sells forex pairs, your account would automatically do the same, with the initial investment being equal to the percentage of your portfolio that you have linked to that trader. You could allow this to continue automatically for as long as you wanted. If you decide you no longer wish to copy that trader, you can end your copy trading link with just a single click.

Which brokers and platforms offer copy trading?

Copy trading is increasingly standard fare among top forex brokers. If you are new to copy trading, you want a trusted, licensed broker that can connect you with genuinely successful forex traders. Here are some of our favourite broker platforms for copy trading in 2021.

eToro

Arguably the world’s top forex trading platform right now, eToro offers some of the most extensive copy trading options around. You can copy elite institutional investors in London and New York, as well as choosing your preferred traders from eToro’s forex leaderboards. The choice is yours.

Skilling

This user-friendly and highly trusted platform makes copy trading easier than ever. With a deposit of just £100, you can open a Skilling account and start performing multiple simultaneous copy trades via their bespoke c-Trader platform, a purpose-built software suite specifically designed for seamless copy trading.

AvaTrade

If it’s choice that you’re after, AvaTrade has got you covered. This expert brokerage site offers multiple platforms for copy trading that you can use simultaneously, such as ZuluTrade and DupliTrade. You can also perform copy trades on a wide range of assets, including dozens of cryptocurrencies and crypto CFDs.

The beauty of copy trading is that it requires zero experience in forex markets to get started. All you need to do is create an account with a broker, sit back, and let a more experienced trader do all of the hard work. That being said, copy trading can come with substantial risks, which is why it is important not to fall asleep at the wheel. Read on to find out the key risks and advantages of copy trading that you need to keep in mind before you begin.

Copy trading risks

Let’s start with the bad news. First off, copy trading is not a sure thing. Just because a particular trader that you wish to copy has a solid track record and a robust forex portfolio, does not mean that they are immune from bad investments.

Many copy traders can and do frequently lose money by hitching onto the wrong wagon, so keep this in mind and always remember to put a stop-loss in place to reduce potential copy trading losses. In addition, copy trading means that you have less opportunity to learn more about the markets yourself and understand how forex works. Without this knowledge, you will never become a successful investor in your own right. That’s why you should only dedicate a portion of your portfolio to copy trading.

Finally, it is important to keep in mind the copy trading leaves rookie traders exposed to a lack of diversification. It is easy to put all of your eggs in one basket, meaning that your whole portfolio can suffer when things go south.

Copy trading advantages

Of course, there are also many advantages to copy trading that help to explain its popularity today. Perhaps most importantly, it allows you to easily and freely capitalise on the expertise of a trader with years of experience.

Instead of paying a financial guru thousands of pounds to teach you the secrets of trading, you can simply copy the buys and sells of a top trader without lifting a finger. In addition, copy trading can be a great way to diversify your portfolio if you do it right, by incorporating a trading style that you would not normally follow into your existing portfolio.

If you’re ready to start copy trading today, you’ll need a forex broker you can trust. For this, we have got you covered. Make sure to consult our in-depth forex broker reviews to learn more about the best and most trustworthy US brokers for copy trading in 2021 and beyond.