What Is Copy Trading and Is It Profitable?
The good thing about modern forex trading is that many trading platforms are coming up with different concepts that help traders become more successful, just like iqoption do. To learn more about this fantastic forex trading platform, check our iqoption review. In its most basic form, copy trading is straightforward: you utilize technology to duplicate the actual forex trades of other professional investors (that you wish to emulate. It will allow you to replicate their trade strategies in your brokerage account whenever they make any.
What is copy trading?
Copy-trading is a type of investment strategy. The idea is to identify other forex investors with a proven record that you admire and want to follow in their footsteps. Copy trading is a procedure that allows traders to copy the tactics of other experienced traders. The investor is the most important person to follow when it comes to trading systems, and traders are better served before they choose to risk their own money.
In 2005, copy trading arose due to the development of mirror trading. Initially, traders duplicated specific algorithms developed through the use of automated trading systems. Trading histories were provided by developers, allowing others to mimic their trading techniques. This scenario resulted in the formation of a social trade network. At some point, traders began to replicate deals in their own trading accounts rather than duplicating a method, and to do so; they had to copy another trader.
How does copy trading work?
It is possible to connect a portion of your investment portfolio with that of a forex trader of your choice through copy trading. Once you have copied a trader, all of his or her open trades are cloned to your account, and you can continue trading. Moreover, all of their acts in the future will be immediately duplicated to your trading account, as will all of their previous actions. You will be asked to select a sum of money to put into a specific trader's account. In most circumstances, the amount cannot exceed 20% of your whole portfolio value. It is computed based on the amount of money you have opted to invest that the amounts utilized in trades are a percentage of the traders' total portfolio.
Consider the following scenario: your account balance is presently USD 2000. While you currently have no open deals, you have chosen that you would like to copy a trader's strategy. His stats appear good, but because this is your first time attempting something of this nature, you don't want to put too much money into it. That is why you make a USD 200 investment. The trader currently has one open position, which has been replicated to your account.
Is copy trading profitable?
One of the critical questions that arise here is that “is copy trading profitable?” The answer is simple yes, it is if you can identify a successful forex trader to copy. However, when copy trading, the main risk a trader faces is market risk. A trader may lose money if the approach they are replicating is unsuccessful. When markets are volatile, traders are also exposed to liquidity risk (depending on the instrument traded). Finally, if the asset they are trading sees significant drops or rallies, traders may be exposed to systemic risks.