The global trading landscape has dramatically changed in the past decade. What used to be the stomping ground for a few major players is now open to even small traders.
This dramatic shift can be attributed to the emergence of online trading platforms and brokers who offer trading services.
As more and more investors are trying to take advantage of the availability of trading instruments, the number of online forex and stock traders has grown exponentially, especially in the last seven to eight years.
Even though the financial market is open to all, it doesn’t mean that it’s easy to navigate.
A trader has to research the different trading instruments available before placing a trade. This is one of the major reasons that drive novice traders towards copy trading or social trading.
What is Copy Trading?
The process of Copy trading allows any trader to copy the trades of investors on the market. They can still maintain complete control over the trades they make such as deciding which investor’s trade to copy among other things.
This means that any trader can copy the trades of expert and reputable traders in the market and apply it to their own account.
The degree of control that copy trading provides users aids them in learning about how the financial market is functioning. It allows them to directly learn and understand trading concepts from top investors while simultaneously profiting from their trades.
They no longer have to rely on articles and other educational resources for practical knowledge.
Benefits of Copy Trading
There are numerous benefits of copy trading when compared with other forms of manual trading. A user works with the same technical indicators used by top traders in the market. Apart from this, traders are increasingly going for copy trading due to the following reasons.
Achieve Better Diversification
Copy Trading provides traders with so much control that they can eliminate some of the limitations associated with this method.
For instance, traders can now examine any trading strategy and find one that works for them, rather than just blindly copying and hoping for the best. This also means that users are no longer limited to copying the trades of one investor at a time.
They can instead enter multiple markets and copy the trades of the top traders in each market.
Easier Initiation
There are multiple trading software and tools available in the market. However, many traders struggle to start trading.
Copy-trading on the other hand makes the start-up process so easy. Various authoritative sites allow traders to review popular copy trading services, platforms, and traders. All of this makes it easy to start using copy trading services.
Multiple Options and Providers
There are a handful of good providers when it comes to copy trading or social trading. Ultimately the quality of the service a trader will receive will depend on the social trading platform he/she has chosen.
For instance, eToro is a well-known broker for social trading.
The trading platform provides access to CFD trading, forex trading, and different cryptocurrencies. Traders can choose from 47 currency pairs, 145 Exchange-traded funds, 1900 stock CFDs, 6 Commodity CFDs, 17 cryptocurrencies and 13 stock Index CFDs.
Greater Offerings
Copy trading opens the trader to a vast array of instruments found on the open market. This provides more flexibility when it comes to building a portfolio. As a result, a trader will often end up with a well-mixed portfolio that he/she would otherwise never thought of.
Time-saving
Normal modes of trading involve devising a trading strategy and conducting both fundamental and technical analysis.
The analysis takes a major chunk of the trader’s time but is a necessary aspect if one wants to be successful. With Copy Trading, users can simply avoid all the hard work mentioned above. It can allow users to avoid conducting any type of analysis to execute trades.
Allows anyone to trade with limited knowledge
Probably the biggest advantage of this mode of trading is that it allows even the most uninitiated or novice traders the chance to start investing. This is extremely useful as novice traders find it difficult to take in the challenges involved in real-time trading.
Guidance from a seasoned trader
Traders, especially those who deal with currencies might be full of doubts while executing trades. The whole process of understanding the trading process is pretty lengthy and can easily slow down anyone’s progression.
On the other hand, in copy trading, the trader receives full guidance from an expert. This allows them to make appropriate decisions when placing trades and making moves.
Passive Investment
Copy-trading provides the perfect way for a passive investment opportunity.
A novice trader can either start right away or take some time to watch what the other investors are doing. In case a certain expert trader’s trades are not successful, the novice trader can always move on to another one. One can trade according to their convenience.
Minimizing Risk
Manual trading involves a lot of issues related to risk management.
On the other hand, copy trading lets the traders copy according to their wishes ( as few or as many as they want). If they follow these traders and their productive strategies, they can easily minimize risk while still staying ahead of market trends.
Limits potential losses
Trading always involves losses. Losses can be detrimental to a trader especially if he or she is using their life savings or any important discretionary income to trade. By using copy trading, they can easily limit potential losses by seeing what established traders have done.
Monitoring the activities of expert traders can be the difference between a great day and a poor day in the market.
Thus, Copy Trading is regarded as a comprehensive way for novice traders to enter the market. However, they should always approach it with learning in mind. It serves the dual purpose of a learning tool for traders as well as simultaneous automated trading.
Researching before enrolling in a copy trading service is always advised.