Best Copy Trading Platforms in 2022
Copy trading is a form of social trading that allows investors to participate in the financial markets by copying trades that have been executed by experienced/ expert traders.
The growth in the number of people copy trading has exploded in the past 5 years. Its popularity can be attributed to the fact that people want to grow their wealth, but do not have the time or experience to study the markets on their own.
But is copy trading safe? Read on to find out more.
Copy Trading Explained
As explained above, copy trading is a type of social trading, where an individual can replicate the trades made by an experienced and/ or seasoned trader. The previous trading results of these experienced/ seasoned traders are generally published for all to see.
Copy trading can be completely automated, or you can manually enter the trades yourself. If you choose to automate the process, all trades from the expert/s you follow, will be placed on your copy trading platform account. If you decide to make it a manual process, you will see the trades of those you are following and can decide each time if you wish to enter the trade or not.
Before you begin your copy trading journey, it is important that you research this product and how it works, first. We would recommend opening a demo account to test how copy trading works before proceeding to a live account with real money at stake.
Never forget that, even though you are following the strategies of some seasoned pros, your money is still at risk and there is no guarantees that you will make money.
How Does Copy Trading Actually Work?
With copy trading, the process begins when the trader you are following/ copying opens a new trade.
Once their trade has been opened, the same trade will be placed on your copy trade account. This will usually happen automatically, although some copy traders prefer to make the trade manually to begin with.
The trade itself will either make a profit or a loss. For instance, if the trader you are copying makes a $1k loss, so will your account (if you made the exact same trade).
When copy trading, you can decide whether you trade the exact same amount as the expert, or more, or less. For instance, if they buy 10 units of an asset and make $2k, and you decide to just buy 1 unit, you would have made a 1/10th of what they did ($200).
Example of Copy Trading
- You open a trading account, conduct some research and decide to start copying the trades of Joe Bloggs, who in the past 3 months has yielded a 36% return.
- Joe Bloggs believes the Wall St 30 index will increase and so buys 5 units of this index.
- As soon as Joe places the trade, the exact same trade will be opened on your own copy trading account.
- After two days, Joe closes the trade and makes a $500 profit.
- You too would have made a $500 profit on Joe’s trade!
Some Benefits of Copy Trading
Below are some of the main benefits of why copy trading has become so popular;
Ease and Time-Efficient
Let’s face it, copy trading is relatively easy and can save us all plenty of time. Rather than studying a range of different assets and looking for trends, we can copy a pro trader and potentially make a profit.
Copy trading is an excellent way to diversify your portfolio, with very little effort involved. Simply copy several different traders who are experts in their own asset class (i.e. indices, FX, crypto etc.) and mix things up rather than owning one asset class, i.e. stocks only.
Trade Global Markets All From One Account
An online trading account will give you access to all the major markets from around the world. What’s more, with the help of a copy trading platform, you will gain exposure to global financial markets with the help of experts.
If you are new to the world of online trading, then copy trading is a great way to education yourself. This form of trading allows you to ask questions, follow experts and learn from the best.
This form of trading creates a real sense of social community, where ideas are shared, questions are asked and strategies formed. You will never be alone when copy trading!
No form of investing is risk-free and copy trading is absolutely no exception. Here are some common risks involved;
Can you ever really trust someone you have never met? As its unlikely that you will ever meet any of the experts that you copy, you are heading into unknown territory with real money. That is a huge risk.
This is the biggest risk of all. Never forget that you are one market collapse away from losing large sums of money. Do not ever trade with money that you cannot afford to lose is probably the best way to look at it. Also ensure that you trade with a broker that offers negative balance protection.
Again, all investing is risky and copy trading is no different. Copy trading can lead to complacency and overconfidence, particularly after a few early profits have been made. Never become complacent!
How Do You Choose The Best Copy Trading Platform?
Beauty is in the eyes of the holder, or so they say!
We are all different, with different tastes and preferences so it is likely that a platform that works for one person, is disliked by another. Shop around and test out a few before committing.
That said, consider these important factors when searching for your ideal copy trading platform;
- Are they regulated by a Tier-1 jurisdiction? Think the FCA, ASIC, MAS and the like. Does your broker of choice have one of these licences? Yes; continue on. No? Look for another broker.
- Pricing? What does the platform charge you to copy trades? Some are cheaper than others so shop around!
- How many traders do they have to copy? Again, this can vary by platform. A platform like AvaTrade offers several hundred traders to copy and is ideal for this form of trading.
- Quality of traders… Are the traders any good? Always research each individual trader before copying their trades. Do not fall for amazing headlines if there is no substance.