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Pros and cons of Copy Trading

Author: Rosemary Barnes
09.09.2021

Copy Trading (CT) is an approach that originated in 2005 when traders commenced copying certain algorithms designed for automated deals. The approach continues to gain momentum; meanwhile, experts distinguish both pros and cons of this methodology.

What's Copy Trading?

The method's name explains its principles; this is why newcomers easily comprehend that Copy Trading is based upon the copying of other traders' deals. What are the precautions of this approach? The Forex market is still among the most promising instruments to invest in. This said beginner players join this industry in the search of profits.

Forex statistics show the following facts:

  • More than 30% of newer traders (less than 1 year of experience) understand financial markets as too complicated. Copy Trading is the only effective approach for those traders.

  • The CT method generated more than $50 billion of profit in 2020, and this number is expected to grow up to $80 billion by 2025.

What does Copy Trading mean?

The approach comprises the following steps:

  • Find a professional trader who entirely corresponds with your goals, and subscribe for him (her). Take the following aspects into account: the number of subscribers, trading statistics, profits, risk level, return on initial investments, and other factors.

  • Define your investment budget. Remember that your investments should not create hurdles for your everyday life. Decide which sum is enough to invest in. Copy Trading - how to start? This is a question of all newcomers, and experts recommend following several successful traders. Share your investment budget among 2-3 traders.

  • Choose the preferable CT mechanisms. Some traders open and close deals manually, receiving signals. Other investors prefer to automate the process. Semi-automated mode is available as well.

  • Invest more funds when outcomes correspond to your expectations. In case of losses, choose other traders to follow.

Top-5 pros of Copy Trading

  • The approach is helpful for newer market players. When you've just entered the market and have no experience, copying other traders' deals is a perfect path to understand how the market works.

  • When a trader cannot understand the FX market mechanisms and suffers losses, Copy Trading is the way to get profits from this instrument.

  • Automated process of CT deals liberates investors' time, as orders are placed by special software. This said the approach serves as a passive investment option.

  • Advanced risk management takes place, as investors analyze a professional trader's statistics, strategies, and other aspects to understand whether they are ready to rely their money on a trader or not.

  • Control your losses. When outcomes don't correspond to your expectations, it's easy to shift your attention to other traders.

Main cons of this method

When users dive deeper into how to do copy trading, the advantages are quite bright and attractive. Meanwhile, don't forget that disadvantages exist as well:

  • Professional traders face a run of bad luck as well; this is why risks to melt down your deposit are present.

  • While talking about manual CT, traders need to have 24/7 access to a platform. If you prefer the automated mechanisms, software should be always online.

  • The vast majority of successful traders demand fees from successful deals; this is why the approach includes some expenses.

Hence, analyze the pros and cons of copy trading to understand whether this method corresponds to your views and expectations.

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