Recently, Copy Trading (CT) has become one of the most common strategies in the financial markets. Its essence lies in the fact that a person (a copyist) repeats the transactions of a more experienced trader (a lead). The point of repetition is that a more experienced trader is more likely to guess the rise or fall of an asset. That is, it is more profitable to trust their choice than to rely on your knowledge.
Admittedly, CT simplifies the process and makes the market accessible to all categories of users. People without experience can safely take the first steps using the knowledge and experience of more advanced participants. At the same time, the risks of losses are minimised, and the probability of profit increases. In addition, by watching what bets professionals make, you can quickly understand the intricacies of the market and learn how to make independent decisions. The main thing is that the trader retains control over their capital, that is, they can close a trade at any time.
CT helps to make money not only in the currency but also in the stock and cryptocurrency markets. It should be remembered that the software for copy trading is integrated into most modern platforms. One can hear the opinion that CT is a passive process, but this is not entirely true. In fact, you need to do a lot of work to find a lead that meets your needs, and in case of a series of failures, you will have to change to another signal provider. In this article, we talk about the history of copy trading and how CT works in practice.
Concise history of Copy Trading
When the internet was not widespread, traders received information from more experienced colleagues using paper letters. The person had to subscribe to one or another lead (of course, this service was paid) so that they would send newsletters telling them which trade they were going to open and when. There were also closed forums where market participants could exchange information. At the end of 2004, the first platform appeared on the internet where it was possible to share the history of transactions, and a little later, full automation was introduced, which made it possible to reduce the number of manual actions to a minimum.
Convenient mass access was offered by eToro in 2012, allowing the copying of transactions in any volume. The platform has gained popularity among traders of all levels. Later, many similar platforms appeared. Now, entry barriers have been lowered, and traders can not only invest in assets but also use CFDs. It is also possible to trade cryptocurrencies and play on the difference in quotes. One of the most popular coins today is Bitcoin, which has been growing steadily for many years and still retains high volatility. Many brokers, such as AvaTrade, provide the opportunity to trade BTC with leverage, meaning you can borrow most of the funds to open a trade.
How CT works in practice
In fact, the principle is very simple: all operations that occur on the lead account are repeated on the copier account. The first step is to select a lead. You need to view the list of traders that are offered on the platform where you have registered. Analyse the activities of these people and conclude their success. You can read the supporting materials and learn about these individuals from third-party sources. The lead must be successful long-term. Of course, temporary downturns are possible. In general, the lead should receive more than they spend. Many copiers choose a signal provider that they believe is doing the right thing, meaning they understand their strategy. Some platforms offer to connect to several leads at once, dividing your budget into parts.
The next step is to connect the account to the lead and set the copy settings. You can copy all or some of the operations. You can exclude currency pairs that you don’t like. You can set a limit on the number of transactions that will be carried out during the day. The third step is copy control. You must constantly monitor the results of copying. The lead may start doing incorrect actions that will lead to losses. In this case, it is better to suspend the binding. You should use risk management tools, so you will receive a warning if your balance reaches a critically low level.
As a conclusion
Copy Trading is a common strategy that is actively used today. Many platforms offer CT with an expanded set of features. Not only beginners use CT but also experienced traders to simplify the trading process and entrust a number of their decisions to professionals. This allows you to increase income and minimize losses. CT is most suitable for those who have little time, as the process can be fully automated. Remember that even if you copy data from an experienced trader, there are still risks that in the short run, the expenses will exceed income and your balance will decrease. Accordingly, you should use special risk control tools and try to reduce losses. AvaTrade broker offers one of the best conditions for cooperation in the field of trading.
