The general concept behind Copy Trading is simple. In short, it is an automatic process that enables the copying of expert traders as a form of passive investing.
This article explains how to start Copy Trading (e.g. by opening an account and copying established traders) and how it differs from Mirror Trading.
Copying another trader's account in the financial markets allows beginners to mimic their trades – from a different country.
The key features of social trading, available through the top trading platforms, have revolutionized the way we trade online.
For example, one of the best known and trusted platforms for newcomers to start trading online is eToro.
After setting up your account, and getting it verified, the feed combines all the basic components that constitute social trading, such as:
So, anyone familiar with the eToro trading platform, will see a distinct lack of complicated charts. Instead, you're presented with a clean, user-friendly display – much like the top social media networks.
You will be able to follow an array of other social traders if you decide to join eToro. Moreover, the platform also allows you to view their recent activity (e.g. by having it on your 'watchlist').
Simply put, a watchlist is a live trading feed that shows the traders and assets you have chosen to follow (e.g. stocks, commodities, ETFs, Cryptocurrencies, indices).
The technology used in eToro's patented CopyTrader™ is one of their most popular features. The tool allows any member to copy a bunch of successful traders by setting up an automatic process.
Note: The main section contains more information about stock market trading as a business and how to set up passive income streams.
In short, it means you will open the exact same positions that they have. So, you might compare it to having a people-based portfolio as part of your social trading strategy.
This is an ideal solution for individuals who want to participate in the online trading industry, but struggle to find the time to learn. Hence, copying your favourite trader(s) means you will be able to benefit from their superior skills, knowledge, and proven track record.
A good place to start is the Editor's Choice section. This is where you will see a list of the Popular Investors and their basic credentials.
Traders displayed in this section have not only maintained a low-risk score, but they will also have shown some significant gains in recent months.
Similarly, using the people discovery tool allows you to search for other eToro traders that you may want to copy. There are several ways to filter the search results, such as by:
Note: Clicking on a trader's profile opens up another section where you can see a short bio, their recent trading statistics, and what kind of trading strategy they are using.
After deciding which trader(s) you want to copy, you complete the action by clicking "Copy". Next, you will need to decide how much you want to allocate to that particular copy trade. It can either be "all" or a "portion" of the total equity inside your eToro account (minimum $200).
Let's take a closer look:
Executions are proportional. So, allocating $1,000 to copy a trader with a $10,000 trading account means if they open a $1,000 position, your account would create a $100 copied position.
In this system, you will be copying the direction of the position as well as the investment strategy already put in place by the trader.
There are several ways Copy Trading diversifies investments, providing the copied trader also chooses to manage their risk in similar ways. Hence, all clients should manage their risks through the 'Responsible Trading' policy as suggested by eToro.
Which leads us to…
The company eToro first started trading back in 2006. Since then, they have revolutionized the way people trade online through their CopyTrader and Copy Trading initiatives.
Even if you have yet to deposit money into your eToro account, you can (and you should) use the FREE $100,000 virtual trading account to practice copying other traders.
Pro Tip: One of the most important parts of proper risk management is diversifying your investment amounts and assets.
There are several striking similarities between the investment activities used in Mirror Trading and those used in Copy Trading.
Essentially, a Mirror Trade is a concept that copies – or mirrors – another person's trades. In fact, it's been used in the foreign exchange market (abbreviated to Forex) since the turn of this century.
Having your trades handled by some of the best traders in the world has many benefits. The most obvious one is that it completely automates the trading experience, meaning clients have no need to intervene in the process.
Most of the Mirror Trading platforms accumulate worldwide experienced traders. So, the creation of free trading accounts generally means platforms can display a history of impressive performances (e.g. through the auditing process).
Mirror Trading companies set up agreements with brokers and build them into their programs. So, by configuring broker accounts into a single 'master account', they are able to get greater control.
Hence, the company holds individual accounts – held by the brokers and 'master account'. After awarding a master account to the top performers, it's 'mirrored' in other accounts connected to it.
The bottom line is this:
After choosing a 'mirror trader' to operate their account, the system encourages clients to open an account with the nominated broker for that particular master account. Hence, the structure auto-configures the account to the master account of the selected trader.
Why is that important? In simple terms, anything that the trader sets up on their own account will be replicated (or mirrored) in the account of the client from that point in time.
Nonetheless, clients may also choose to select their own parameters for risk management. Doing so means that occasional aggression (some might call it trade failure) is unlikely to reflect itself in the client's own account.
Note: In part, this is how the eToro platform revolutionizes and simplifies Mirror Trading. By doing so, the aim was to create a Social Trading feel that is dynamic, simple, and user friendly.
Note: Another section contains legal information about Capital Gains Tax when selling cryptoassets (e.g. altcoins, Bitcoin).
Tips for Beginners When Copy Trading in the United Kingdom