As we have looked at above, there are a few different types of trading available under the umbrella of copy trading, which share some similarities, but can also be quite different. Here we will take a more in-depth look at each.
Social Trading
Social trading is a kind of hybrid form of copy trading. It typically allows copy trading with the addition of the fact that you can interact with the other traders at the broker. This allows you to share ideas, signals, and even discuss how to copy forex signals and other points. These brokers can also provide detailed statistics which you can view for each trader before deciding to copy them or not. In this field, eToro is by far the leading social trading broker in the world.
Copy Trading
Again, looking at the question of what is copy trading. WIth a copy trading broker, you copy the performances of other traders at that broker. This can take many forms. You could choose to copy open trades from the person, or start from only new trades they make. With copy trading, you are essentially investing in the growth of a particular trader. This can be much like an ETF type of investment. So you will want to choose the best copy trade broker, and traders possible. You can also choose how much to invest in a certain trader, and you will gain or lose proportionately to their performance.
Mirror Trading
As mentioned above, mirror trading is a little more fixed in its operations than copy trading. Here you can open positions automatically at the same moment the other traders do. The same goes for closing the trade. Mirror trading is much more based in algorithms, auto-trading bots, and pre-defined trading strategies. Traders code certain trading signals and strategies. You then choose whether or not to begin following these. A pioneer in the area of mirror trading is Tradency. They still offer all of these types of services, and provide a range of trading signals which they have done for many years.
How Copy Trading Works
Of course when you start copy trading, one of the first, and most important things to be informed about is of course the process of copy trading. So here is a look inside how it happens:
In copy trading,the trader (the person you will copy), opens a trade. The investor (you), then copies that trader. This usually happens automatically and without the need for any difficult interventions.
You will then win or lose along with the trader you have copied. If their positions grow, so will yours, and vice versa. One of the important points to note is that everything is proportionate, so you can invest whatever amount you like depending on the broker rules, and through copy trading, you will gain or lose proportionately.
One point here is that when choosing the traders to copy, you should take note of the position sizes they usually open, as this can impact your investment. Let’s take a look at an example: If a trader opens trades on multiple assets where the average profit/loss is already at +10%, then you decide to invest $100. Finally the profit/loss moves to +15% so you close out your position. Of course you have only earned +5% because you started copying when the trader was already at +10% profit.
Why is copy trading so popular?
Copy trading has grown in popularity a lot in recent years. There are a few key reasons as to why it has become so popular. First off, it is cheaper to engage in copy trading than mirror trading. It also gives you the chance to copy expert traders. Some of the best copy trade broker choices feature top traders from around the world. This can add great diversity to your portfolio.
Convenience is another factor. Copy trading does not require you to directly trade. This does not mean it is easier or simpler, it just means you leave the actual trading to someone else. You still need to know the markets and choose the best traders to follow.
