Advantages and Disadvantages of Copy Trading
CT (Copy Trading) is a strategy that began in 2005 when traders started duplicating certain algorithms developed for automated trades. The strategy is gaining traction, but experts are separating the advantages and disadvantages of this approach.
What is Copy Trading?
The name of the strategy reveals its fundamentals, so newbies can quickly understand that Copy Trading is focused on mimicking other traders’ orders. What are the downsides to this method? The Forex market remains one of the most attractive investment opportunities. According to this, newcomers enter the field with the hopes of making money.
The following facts are revealed by forex statistics:
- Financial markets are too sophisticated for more than 30% of rookie traders (those with less than a year of experience). For some traders, copy trading is the only viable option.
- In 2020, the CT technique generated more than $50 billion in profit, with that figure predicted to rise to $80 billion by 2025.
What does Copy Trading mean?
The method consists of the following steps:
- Find a professional trader that is completely aligned with your objectives and subscribe to them. The number of subscribers, trading statistics, profitability, risk level, return on initial investments, and other elements should all be considered.
- Set a budget for your investment. Keep in mind that your assets should not become a hindrance in your daily life. Determine how much money is appropriate to invest. How can I get started with copy trading? This is a common question among novices, so experts advise that newcomers take the advice of multiple experienced traders. Divide your investing budget amongst two or three dealers.
- Select the most appropriate CT mechanisms. Some traders use signals to manually open and close trades. Other investors prefer to have the procedure automated. A semi-automated mode is also offered.
- Increase your investment when the results meet your expectations. Choose other traders to follow if you lose.
Top 5 advantages of Copy Trading
- The strategy is useful to newcomers to the market. When you’re new to the market and have no expertise, mimicking other traders’ trades is a great way to learn how to trade.
- Copy Trading is a strategy to profit from this instrument when a trader does not comprehend the FX market operations and loses money.
- Because orders are placed by sophisticated software, the automated procedure of CT trades frees up time for investors. As a result, the strategy can be used as a passive investing alternative.
- Investors examine a professional trader’s statistics, techniques, and other characteristics to determine whether or not they are willing to put their money in the hands of a trader.
- Keep your losses under control. It’s simple to move your focus to other traders when results don’t meet your expectations.
Main disadvantages of this method
When customers learn more about how to replicate trade, the benefits become clear and appealing. Meanwhile, keep in mind that there are drawbacks:
- Professional traders are not immune to poor luck, which is why there is a chance of your investment being wiped out.
- When it comes to manual CT, traders must have access to a platform 24 hours a day, seven days a week. If you want automatic mechanisms, software must be available at all times.
- The vast majority of effective traders demand commissions from successful transactions, which is why the strategy incorporates some costs.
As a result, weigh the benefits and drawbacks of copy trading to see if it aligns with your beliefs and expectations.