Copy Trading

This article looks at how you can use copy trading to make the same trades as the best traders.
If you choose the correct trader to copy, you can trade with the minimum amount of risk and remove any of your own emotions from your trading.
Copy trading has opened the door for almost anyone who wants exposure to the potential benefits of trading, especially Millennials and Gen-Z, who account for most new users. Trading platforms and copy trading software are enjoying year-on-year growth, which is partly due to the appeal of social/copy trading.

What Is Copy Trading?

Copy trading is a form of financial service that allows you to copy the trades opened by other traders automatically.

It can be done while trading forex (for example, USD to GBP), stock market, and even crypto trades, such as bitcoin and ethereum.

Copy trading aims to provide new traders with an opportunity for success through access to trading strategies and techniques developed by those who have already proven themselves successful.

This means that your success is no longer limited by your own skill, but the trading skills of those who have already demonstrated a profitable past performance in trading. As such, there is no need to learn advanced trading techniques or spend hours searching for winning strategies – phew!

How Does Copy Trading Work?

Copy trading is as simple as it sounds – you copy another trader’s trade. This includes their entry point, their stop loss, their position sizing, everything.

You find traders to copy on social media, a social trading platform or on a copy trading platform.

As such, copy trading can be a good solution for beginners who don’t have the time or the experience to make sound investment decisions or who don’t know about the intricacies of trading, such s diversification.

Beginners can simply follow these steps to get started:

1. Look for the best copy trading platform or exchange commission (see our recommendations later on in the article), create a trading account, and then deposit some funds.
2. Once your account is activated, it’s advisable to use the search filter to find traders that reflect your trading style.
3. Review their trading activity and click “copy” when you are confident in copying this trader.

Who Is Copy Trading For?

Whether you want to profit from stocks, commodities, forex, or any other type of financial product, success requires an advanced understanding of the specific market…

But does it?

Copy trading acts as a solution by giving exposure to the potential profits of trading, whether you’re a total financial rookie or have some trading experience.

Alongside minimising the time spent learning and researching, copy trading gives traders a way to diversify their portfolio into markets they’re unfamiliar with, which both opens the door for more opportunities and lowers the risk of trading mistakes.

Simply put, it’s no longer a requirement to have an expert level of knowledge in every market or industry. You benefit by:

• Profiting from proven strategies
• Reducing the time spent on research and learning
• Being able to trade on-the-go
• Learning from more experienced traders

Is Copy Trading Profitable?

Copy trading can be profitable if you copy the correct traders.

You profit when they profit!

However – copy trading carries the same risks as traditional trading and is not a guaranteed route to wealth. Just because a certain trader has made 300% in the last month, it doesn’t automatically mean that they will continue to realise the same gains moving forward.

They still deal with market volatility, emotions, up swings and down swings like the rest of us – but if they’re profitable, they just handle these variables better than the average trader.

Copy trading can be seen as a simple and profitable endeavour. However, here are a few factors that are necessary for success:

• Maintaining risk-management rules
• Selecting the most appropriate traders to follow
• Not expecting overnight riches
• Diversifying your investment portfolio among different markets and traders

The first bullet point needs to be emphasized, as even copying the best trader will result in losses if risk-management principles aren’t being followed. Losses happen to every trader, no matter how good they are at finding winning trades.

It’s important to recognise that this happens – otherwise you may become desperate to win back losses, which is one of the biggest trading mistakes.

On a similar note, it’s advisable to diversify your portfolio. This is to minimise the chance of big losses due to trading errors or black-swan events.

What are the Pros and Cons of Copy Trading vs Traditional Trading?

Pros

Trading novices may benefit from watching experienced traders – They can learn from their mistakes and successes. Novices can go one step further by taking advantage of the social features of most copy trading platforms, which can help with learning technical analysis or gaining information about an instrument the novice isn’t familiar with yet.

Information can be shared with other traders for common benefit – If a trader is an expert in certain asset classes, he or she can share their knowledge with other traders, which is a huge benefit to those who are copying.

This form of trading can be more time efficient than others – The trades are executed automatically, which means your account is making trades even while you’re commuting to work, eating breakfast, or going for a walk. You no longer have to be chained to your desk and watch charts for hours – sounds good to me!

Make more profit from using proven strategies – Copying an expert trader who has a proven strategy increases the chance of success when compared with trying to profit from your own unproven techniques. This can be based on technical analysis (e.g. Japanese candlestick patterns) or fundamental analysis (e.g. seasonality). In fact, this was shown in a 2013-2015 study, which found that 97% of day traders in Brazil lost money. With most people losing money, it makes sense to follow the small percentage of traders that are able to turn a profit.

Cons

Good traders allowing you to copy trade may demand compensation – This is usually in the form of a percentage-based commission or paying for an annual subscription. Also, the broker may demand a higher spread (fee per trade placed on the platform) for those copying compared to the “master trader”, which could skew results when compared like for like.

The risk involved with copying others’ bad trading decisions – Your success is in the hands of someone else – which is a scary thought! You have to be careful about how you select your copy trader, and it can take a lot of time to find one that will work for your needs.

Can provide a false sense of security – When copying “proven strategies”, it’s easy to think profits are almost guaranteed, which is far from the truth.

Researching more experienced traders takes a long time – Although you don’t have to research trading strategies, you’ll still need to spend a lot of time researching your potential copy trader before actually copying them.

Past results are not always indicative of future results – Many of these traders will have only participated in a bullish (positive) market, which means the strategies may or may not work when the market turns bearish (negative).

What’s the Difference Between Copy Trading and Social Trading?

Through social trading, anyone can analyse the trades and trading ideas of others in the social network. Social traders use this information to make their own trading decisions.

Copy trading involves setting a portion of your capital to automatically copy the decisions of other traders in real time. There is no decision process on whether or not to execute a trade, as the system will execute the trade automatically.

Social trading is an umbrella term that encompasses copy trading. All copy traders are social traders, but not all social traders are copy traders. Make sense?!

You also have mirror trading where you automatically copy the trades of automated software. An example of this would be copying an algorithmic trading strategy. 

How Do You Start Copy Trading?

All you need to do is create an account, deposit funds, and then select a trader to copy. The system will then automatically follow the trades of other traders in real-time, without any further input from yourself – Did I just hear a sigh of relief from my fellow lazy traders?!

It’s a simple process, but you should take the following steps into account:

There are various options for copy trading platforms and brokers – choose the ones that align with what you need

• Use the search function and filtering options to rank the traders
• Before copying a trader, you need to watch them and understand how they trade
• Once you’ve built a shortlist of profitable traders, it’s time to copy them with a demo account
• Move onto real money when you are confident enough – but start small and spread your risk

Following these tips will give you a head start and increase your chances of succeeding. Choosing the right trader is crucial, so make sure you watch out for their wins and losses, along with considering the level of risk they are taking.

What Should You Look For in a Copy Trading Platform?

Picking your trading brokerage is just as important as picking the correct trader to copy (or what you have for dinner tonight).

As such, the platform needs to satisfy a checklist of features. The number one rule is to only deposit your money with a platform that is regulated in your jurisdiction. Also, consider which device you use, such as android or apple, as this can impact functionality.

One-click copy trading – Some platforms allow traders to replicate another trader’s activity with just one click. If you choose to follow a trader, your account will mirror the actions of that individual. This means your account will automatically purchase a stock when the professional trader does.

Regulated – As we mentioned above, only deposit your money with a platform that is regulated and held to account. It’s important to ensure that the platform is regulated in your jurisdiction for full cover. Depositing with an unregulated platform is a bit like lending money to a random guy on the street, and then expecting him to pay up at will.

Real-time trader performance tracking – How your trader is performing is a very important metric to keep track of, but it must be updated in real-time. If not, you could copy a trader who has just embarked on a losing run – oops!

Furthermore, the further back a trader’s performance is visible, the more reliable an indicator it is of his/her performance.

Good reviews – To increase the chance of finding the best platform, you may want to see what other users are saying on vetted review sites, like Google Reviews. With that said; the information should be taken with a pinch of salt, as we live in the age of fake reviews, which is usually due to competitor attacks or customers who are blaming their lack of success on the broker (scapegoating).

What are the Best Copy Trading Platforms?

What are the best copy trading platforms?

After exploring the countless copy trading platforms on the market, we settled on eight that merit mention. Find out which copy trading platform suits your needs best by reading through each of the bios below. Please note that due to regulations some platforms aren’t usable for US citizens.

eToro (US Friendly)

Founded in 2006, eToro is the leader when it comes to copy trading services.

Unlike other platforms that chuck copy trading on top of what they already have, eToro had copy trading as its core focus since its inception. This has resulted in one of the easiest and most user-friendly interfaces on the market. The platform offers an immersive experience that encourages traders to interact with each other.

If you want to do more than just copy trade, then you’ll enjoy a range of social features. One example is the “feeds” area of the platform that allows you to engage with any trader, just like you would on Twitter or Facebook.

Although US citizens have drawn the short straw, as they can only use the copy trade functionality with cryptocurrency assets.

View eToro (US Friendly)

Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk, and content is provided for educational purposes only, does not imply a recommendation, and is not a guarantee of future performance. The Lazy Trader is not an affiliate and may be compensated if you access certain products or services offered by the MSB.

Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk. 76% of retail investor accounts lose money when trading CFDs with this provider.

AVATrade

Established in 2006, from the AVA Group of companies, AvaTrade is an international forex broker. AvaTrade offers competitive spreads, real-time streaming, and a wide range of trading options.

AvaTrade is regulated in the EU, South Africa, Japan, Australia, UAE, and the British Virgin Islands.

One of the main selling points that individuals love about AvaTrade is its broad range of compatible trading platforms for traders at all levels. MetaTrader 4, MetaTrader 5, MetaTrader for Mac, and the MetaTrader mobile app are all options.

AvaTrade also offers a range of automated trading tools, such as the MQL5 Signal Service, API Trading, and Duplitrade.

View AvaTrade

Naga Markets

Responding to the existing financial landscape in 2015, NAGA Trading was founded as a Fintech company. It offers traditional financial markets along with cryptocurrencies and virtual goods.

NAGA really excels when it comes to payments, with the main offering being the NAGA Wallet. This is a safe storage place for your funds, whether you are using cryptocurrency or standard cash. This wallet also features a built-in currency exchange for quick deposits and currency swaps.

If that’s not enough, you’ll also have access to the NAGA card – a Mastercard where your funds are available 24/7 and instantaneously.

The user interface is very intuitive, making it easy for even beginners to start trading in minutes. This extends to an advanced algorithm that will find the best traders for you to copy.

View Naga Markets

MultiBank

MultiBank is a global forex and CFD broker that was established in 2006. The company is regulated across 5 continents by 11 financial regulators, which provides traders with a safe, secure trading environment.

The account opening process is fast and intuitive. You also have many options when it comes to deposits, with all of them having no fees. We want to mention the quick and helpful customer service that is willing to answer any questions you might have.

When it comes to features, it grants plenty of flexibility by allowing more than one trader to be copied at the same time.

On the downside, there are high fees associated with stock CFDs and account inactivity. It would also be great if they could offer a more extensive product portfolio, as they currently only offer CFDs, forex, and cryptocurrencies.

View MultiBank

FP Markets

Founded in 2005, FP Markets offers forex and CFDs trading via the MetaTrader suite. With ultra-competitive spreads through their Raw ECN account, FP Markets is one of the best MetaTrader-compatible brokers.

FP Markets have released their copy trading service to be the best option for traders who are serious about their craft. It’s also available on any Android or iOS device, whether you choose to trade on-the-go or not.

FP Markets’ copy trading service enables you to follow trades of multiple providers simultaneously. It comes with tools which help manage risk by limiting the potential downside. It also guarantees institutional grade liquidity with no price manipulation.

FP Markets conducts its operations with a diverse portfolio of assets that cover over 10,000 CFDs, on top of offering multiple MT4 and MT5 services.

View FP Markets 

ZuluTrade (US Friendly)

Based in Greece, ZuluTrade offers copy trading to its users from 192 countries – even those in the US.

Zulu’s low minimum deposit requirements make it easy for people to explore their interest in trading. If you’re still hesitant, you can simply sign-up to their demo account, which allows you to use the features without depositing at all.

Once signed up, it’s incredibly easy to find the top traders. You can rank traders based on the criteria you find most important, such as:

• The trader’s age
• The trading activity
• The Sharp ratio
• The average duration of trades

There is access to more than 10,000 traders from around the world. Find them on the platform, rank them in order of performance, and then start copying those who meet your requirements.

US customers can get in on the act, but there are some limitations. For example, account holders on the US platform will only be able to open one pair at a time. In order to avoid unexpected outcomes, make sure your provider doesn’t trade multiple trades simultaneously.

View ZuluTrade 

Collective2 (US Friendly)

Collective2 is another US-friendly platform which US agencies validate. With a great reputation, the Collective2 automated trading system now has amassed over 78,000 users from around the world.

Collective2 offers:

1. Automatic Trades (ATS) – Use the automated trading service to automatically execute the best algorithmic trading strategies.
2. Social Trading (ST) – Find the best traders in the community, and then set your account to copy the trades they make.

If you want to get social, the online chat room allows users to talk with each other about their strategies or ask for feedback on trades.

C2 offers a free demo account, which gives £100,000 of virtual cash for you to test on over 5000 trading systems. Once ready, you will have to pay a fee to use each trading system.

View Collective2

MQL5 (US Friendly)

The MQL Company provides trading terminals for online forex and cryptocurrency trading. 

MQL5 operates on a number of different levels, but at its core, is advanced trading software that also caters to people with limited funds. Trading systems are most often set-up on the MetaTrader4 or MetaTrader5 platforms, but both platforms require a subscription and a small fee to follow Signal Providers.

There are various criteria traders can use to find a trading signal provider in the advanced search mode, which includes the average leverage used, drawdown, monthly profit, and much more. The platform also offers the “Reliability” parameter, which simplifies investment reliability by aggregating several parameters.

You can create a free demo account to gain access to over 7,000 strategies for you to copy. Unfortunately, in order to execute the strategy 24 hours a day, you must stay connected to MetaTrader or use a VPS service.

View MQL5

Copy Trading Strategy

Strike when the iron is hot – It’s vital to copy traders that are performing well. If you really want to get the most from this trading method, you should find profitable traders with a positive track record over a long period of time.

Know when to let go and move on – Just like all aspects of life, not every trade will be a success. It’s important to recognise when a trade hasn’t gone to plan.

Diversify your markets as much as possible – The great aspect of copy trading is that you can follow the best trader in each specific market. You should take advantage of this to maximise winnings and reduce risk.

Keep an eye on changing strategies – Traders will adjust their trading strategy as they learn more about the market. It’s important to keep an eye on what changes have been made and how they might affect future trades.

Follow the best traders closely and adapt quickly – It’s important to act quickly if you notice a trader behave differently. For example, if they are starting to trade more aggressively (e.g. doubling down on losing trades) then it would be wise to adapt.

Copy Trading Tips

Creating a strategy using the above advice will put you in the best position for success. But before you get going, it’s important to also consider these tips:

• • Before copying any trader, research their past trades and strategies. Looking at their equity curve will give a good idea of their overall trading performance
    Choose traders that trade in different markets and with different strategies

• • Avoid traders with short track records
  • Reinvest your profits to gain more from the compound effect
  • Trust in the process and in the traders you’re copying. This is why it’s so important to conduct proper research before committing yourself
  • Take time to understand the concept behind the strategy. This allows you to learn while you earn

Conclusion

In conclusion, it’s clear to see that copy trading is a great way to gain exposure to the markets, regardless of your experience level or time commitments.

Thanks to innovative companies like eToro, the copy trading market is developing rapidly and poised for further growth, especially with Gen-Z and Millennials getting in on the action.

I want to make it clear that copy trading shares all of the risks typical of traditional stock trading. You could experience losses no matter who you choose to copy.

Tread carefully, start with a demo account, and learn proper risk management techniques. Oh, and follow the tips on The Lazy Trader, of course.

Copy Trading FAQs

Is copy trading legal?

Copy trading, also known as social trading, is generally legal in most countries. However, the legality depends on various factors such as the specific regulations in a particular country, the platform or broker used for copy trading, and the type of assets being traded.

Is copy trading a good idea?

Copy trading can be a good idea for some investors as it provides access to experienced traders, diversification, and convenience. However, some risks copy trading has its risks, such as lack of control, platform risks, and overreliance on past performance. It’s important for investors to do their due diligence and understand the potential benefits and risks before engaging in copy trading.

How do I start copy trading?

To start copy trading, follow these steps:

1. Choose a copy trading platform: Research and select a reputable copy trading platform. Select one that suits your needs, preferences, and investment goals. Make sure the platform is licensed and regulated by the appropriate authorities.
2. Create an account: Sign up for an account on the selected copy trading platform. Then, complete the required KYC (Know Your Customer) verification process.
3. Fund your account: Deposit funds into your account using one of the supported payment methods.
4. Choose a trader to copy: Browse the platform’s list of traders. Select one whose trading style and performance align with your investment goals and risk tolerance. Review their trading history and profile before making a decision.
5. Start copying: Once you’ve selected a trader, choose the amount of money you want to allocate to them. The platform will automatically copy their trades in proportion to your investment.
6. Monitor your investments: Keep an eye on your copied trades. Regularly review your portfolio to ensure it aligns with your investment goals.