What is Copy Trading ?

Posted by alicejenifferze on April 5th, 2022

Copy trading allows traders to copy trades executed by other investors in the financial markets. The goal of copy trading is for the trader to have the same positions as the investor they are copying. When copying another trader, one doesn’t receive the layout of the trader’s strategy, but simply follows their trades blindly. This compares with mirror trading, which allows one to copy a trader’s actual strategies.

Copy trading was born out of mirror trading in 2005. Initially, traders copied specific algorithms that were developed through automated trading??. Developers shared their trading history, allowing others to copy their trading strategies. This scenario formed a social trading? network. Eventually, traders began to copy trades in their personal trading accounts, copying another trader rather than a strategy.

Copy trading can be useful for traders who don’t have the time to follow the markets themselves. Generally, copy trading is focused on short-term trading, in particular day trading? and swing trading? strategies, but there are several different strategies that are used to generate revenue. Copy trading tends to focus on assets within the forex market, as well as cryptocurrencies and other complex or volatile markets. While copy trading can be lucrative, there are also risks involved, and traders should remember that past results are not a guarantee of future returns. 

Is copy trading profitable? 

Copy trading can result in high profits if the trader finds a successful trader to copy. However, the greatest risk a trader will face when copy trading is market risk. If the strategy a trader is copying is unsuccessful, they can lose money. Traders also face liquidity risk if the instruments they are trading experience illiquid conditions when markets are volatile. Lastly, traders can face systematic risks if the product they are trading experiences sharp declines or rallies. 

Citation: cmcmarkets.com 

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