When you engage in copy trading, you connect a part of your trading portfolio to a “master trader” and their actions (opening and closing positions) will be copied into your portfolio, as quickly as possible. Since the system is automated, you don´t have to sit and look at another trader and copy their actions manually – it is all taken care of by the software.
There are many brokers and platforms where you can do copy trading. Some of them will also allow you to make your own trading visible to others (in an anonymous way) so they can elect to follow you as their master. There are typically requirements that must be fulfilled before you are approved as a master, to ensure the quality of the masters.
Do need to risk the same amount as the master?
No, there are platforms available where you can set limits to how much money that can be risked; both for individual positions, for a specific master, and for your overall copy trading.
Beware of delays
The master will open or close a position, and that action will then be copied in the portfolio of the follower. This means that there will be some delay, even with a great automated system for copy trading. How large this delay will be depend on several factors. If you are engaging in a type of trading strategy where every split second counts, make sure you select a suitable trading platform and copy trading service. If you are doing longer-term investments, and following a longer-term master, this will be less important.
Is copy trading available for forex trading?
Yes, copy trading is available for both forex trading and cryptocurrency trading.
Forex trading, cryptocurrency trading, stock trading, commodity trading, and index speculation are all examples of popular fields for copy trading.
Can I do copy trading on the MT4?
Yes, copy trading can be carried out on the independent MetaTrader 4 (MT4) trading platform. This platform connects traders from a multitude of brokers, so there are a lot of masters to choose among.
Using copy trading for diversification
Some experienced traders do not use copy trading because they need help from a better-skilled trader. Instead, they use it to diversify their portfolio. It is easy to get stuck in a rut where we invest in ways that we are familiar with. Sometimes we trick ourselves into believing we have diversified our portfolio when there is actually very little in the way of diversification going on. (E.g. investing in many different stock companies, but they are all active just in a handful of industries / geographical markets, so if a certain market takes a turn for the worse, many of them will go down together.)
Copy-trading can be used as a method for diversification if you select one or several masters that have a good track record but are very different from you.
Copy trading decisions
Before you risk any real money doing copy trading, it is advisable to have a trading strategy planned out. Here are a few examples of points to think about beforehand:
Is this a part of your portfolio where you want to do high-risk trading or not? There is no such thing as risk-free copy trading, but many platforms will permit you to see some history of the available masters and gauge the risk level of their trading strategy.
Also make sure you know which tools are available to manage risk, e.g. stop-loss orders and take-profit orders. On some platforms, you can use these even if the master is not using them.
- Fixed of flexible?
With a fixed and fully-automated copy trading system, the master´s actions will be mimicked in your account in a rigid way. If this is not what you desire, look for a more flexible system where you can tinker more with the parameters.
Will you allow leverage for your copy trading? If so, within which limits? When you use leverage, you are borrowing money from a broker and risking it on a trade. You have to pay back even if you lose it all. Using leverage adds extra risk, and giving a copy trading program free rein to borrow money in your name is of course even riskier.