Should you do copy trading?

Should you do copy trading?

2019-01-22 11 By Caldero

Another option of trading that recently many people are starting to consider is Copy Trading. Copy trading (or social trading) involves linking your trading account with the trading account of another and taking up the trades that they would be doing. So essentially you’re letting somebody trade for you. There are certain websites that offer copy trading with their set of “experts” and they give a percentage rate for the successes of the people doing the trade. Etoro, as the most prominent example, has a specific system in place for this and it’s one of the main things that they advertise. They even have something for cryptocurrency investors. On paper, it seems like a really simple system because you benefit from others’ research and expertise based off of your own choice but of course there are a lot of snags to consider apart from the obvious potential scams that come with careless account linking because nothing is ever that simple.

The first snag involves the prices involved in the copy trading. That’s about 200 dollars out of your pocket. If you’re going to start copy trading, you’d already need to be operating on a level where you can spare 200 dollars and still has a significant amount in your account to keep up with the trading levels of the experts. Sure the idea is that expert tradings make back that money and more, but it’s still a risky thing to put 200 upfront into something you have to leave more money in later…essentially in the hands of another no less. I hear there are systems in place that lower this price if you sign with certain other trading organizations but I’m not very well versed in those so I can’t vouch for their authenticity. The only thing I can be sure of is the high price tag that is clearly displayed normally. Maybe I will come back to this and update my information if I find more definitive evidence for these “more affordable options” I’m hearing about.

The second snag…is that this is no longer trading really. It’s an investment. An investment in the actions of one person. A person you likely never met or will ever meet. Sure, unlike most investments, you’ll see the results of your return pretty quickly. But this is technically a more risky investment than in a business you think has potential through research or a product you think the current market would totally go for. Not only that, but those investments don’t immediately drain your money if things go poorly at first. At least, they’re not supposed to…

And speaking of draining money…The last snag is that you may be able to handle the gains but never the losses. Depending on how much you put in, it’s possible that they might empty your account first before any real big profits start coming their way. The gains that are listed under the experts’ names on the site are talking about the overall success. Meaning that the payouts you see could be quarterly or yearly or anything around that point. It’s possible that they’re trading with quite a large amount of money and so any losses that may be incurred for them may just be a drop in the bucket from their perspective. But depending on your budget their losing trades could empty your account if they come before any of their winning trades. At that point, you have no money to trade with and win back when those profits come so it will just be a big loss for you. Also, the Traders listed in these expert sections may trade with a lower amount of money but run with a high risk in their Leverage. This may pay off but it is so dangerous to even attempt most times. You would probably never take those risks as a trader yourself but you’re leaving it up to someone else who has a way different mindset than you do. Probably not a good idea.

Despite this, I’m not saying that copy trading in and of itself is a scam or a road to instant losses. I’m just saying that, like most new and shiny things that are advertised to you, there are always snags that catch people off guard. If you are still interested in copy trading, then my recommendation is to try and check the expert’s previous trades. Don’t just look at their alleged success rate. Actually see what is being risked, how long trades go for, and most importantly, how they react to losing trades. Even on the advanced level, people will ride out trades for too long or even add on to them to prolong the trading system to wait for a hopeful retracement. If you find a consistent and reliable trader indeed then there truly is the potential to win big. It’s not like there isn’t anybody who’s amazing at reading the forex charts and predicting the market. They’re just a rare percentage. However, you should probably not risk your entire planned account with them. If you have access to two live trading accounts, divide the money accordingly and only use one with the copy trading system. If you only have one live account, just put in half (or any reasonable percentage in your eyes) of what you’d normally consider putting in your trading account. That way, if things end up in a snafu, you won’t lose everything. Also, there might be the option to run a demo account with copy trading first so that you can scout out which traders are reliable. But I think that they only allow you to do that if you already pay for the copy trading service. I might be wrong but it makes sense that they would. So if you plan to do that, you likely have to make the decision to pick someone eventually even if it turns out all the available traders aren’t that reliable or else you would have wasted 200 dollars. I mean, if they’re REALLY unreliable, then you’d lose even more so that’s a bad time all around. To increase the safety of decisions further, try to find out the results of other people who participated in copy trading and note their experiences.

I’ve been on a few forums and read of people who allegedly made great and near-immediate profits on the copy trading so there’s definitely something there. But I definitely can’t recommend it if you’re just starting out or you yourself just don’t understand why you’ve been losing lately in forex and just want the experts to trade for you because you can’t be bothered to learn from your mistakes. In the second case, it’s almost a guarantee that you’ll just pick whoever seems the most promising, link up the trading account and move from there. That is basically closest to blind investment.