WHAT IS COPY TRADING?

Copy Trading is basically a way to let amateur traders, or complete beginners, automatically copy the trades of more experienced traders.

Also sometimes known as 'mirror trading' or 'auto trading', it lets you browse through the profiles of experienced traders, and see their trading statistics. When you find one you

like, it lets you set your account to automatically copy all of their future trades.

Who offers Copy Trading?

There are an increasing number of sites and exchanges offering copy trading, as more and more 'retail investors' (non-professionals) enter the marketplace looking for a way to invest. To list them here would mean updating it constantly, as the market is growing so fast. I personally use Etoro for Copytrading as it's the fullest featured and simplest to use that I've come accross so far. It also has the largest user base, so there's more people to potentially copy.

How much does it cost?

On Etoro, Copy Trading is free. You pay the normal spread fees for each trade, and there are other fees associated with trading, but there's no charge to copy someone. The people you're copying get incentives from Etoro for having copiers, so it works for them too.

Can people copy me?

The people you copy are called "Popular Investors". If you think you're good enough at trading, and would like to give it a try, you can sign up to their Popular Investor program.

Is it risk Free?

Nope, it's still trading, so assets can go either up or down in value. Learning to pick the right investors takes a little time, but all their statistics and history are there in full view.

How copy trading developed

Let's go back a bit. In the past, if you wanted to invest you had to find a 'broker' who you'd pay commission to make trades on your behalf. The trades could be buying or selling stocks and shares in companies, or a range of other investments. You could either tell the broker what to buy, or take their investment advice or just let them trade for you.

This is how things worked for a long time. Trading was a closed world in many ways, and brokers acted as its gatekeepers. The rest of us just looked on as a small section of elite society seemed to be making a lot of money in the financial markets. The rest of us didn't understand how, and didn't really think we ever could. It was a rich person's world.

the classical wall street trader is shown to contrast with the community ethos in copy trading

Trading floors and Strange charts

The other traders we saw were all busy yelling at each other in strange rooms and staring at numbers on boards... Trading Places was a great film, but really didn't help us all feel like we could belong there. As times moved on, we saw lots of computers, and incomprehensible charts. Things had changed, but they hadn't gotten any simpler. Why has that guy got 6 computer screens!? It looked more exclusive than ever.

The evolution of trading technology

From the old trading exchange floors, to the sleek glass offices was quite a jump. Computers had won, and everything went digital. The internet appeared, and trading floors were on the wane. The old shouting and yelling in the big trading pits of New York, London and Chicago were replaced by computers processing information at unimaginable speed, and traders around the world glued to their screens. Everything had changed, except for the wins and losses. Trading was still trading, and people won and lost fortunes on the money markets.

Social Media Arrives

In an unrelated development, faster internet speeds and better websites facilitated the rise of social media, and it didn't take everyone long to get on board. Within a decade, social media has become an integral part of daily life. People have now grown up using it, and the 'language' of social media is now so familiar we all take it for granted. We know what someone's 'profile' is, how to 'follow' them or 'comment' on something - we understand building digital relationships and having everyone in one big communal digital space.

SOCIAL TRADING IS BORN

As soon as we were all used to social media, someone had the bright idea of combining the features of our favourite social sites with Classical trading, letting everyone join the trading community, with access to live markets, trades happening in real time from around the world, and everyone sharing information with each other about what they were up to.

It was never possible before - the technology just didn't exist... And now, the closed world of trading was made wide open, and the 'Retail investors' (as opposed to the 'professional investors') started to take note of this sudden access to the playground of the rich. It was time for everyone to get their piece of the pie... the problem is, trading is still just as difficult as ever, so someone came up with yet another, possibly even brighter idea.

Copy trading takes everything a step further. As non-professional investors flooded into the market, someone had the bright idea of letting newer investors 'copy' the trades of more experienced investors. For free. We were already used to social media profiles, so they just made trader profiles... But instead of just being social, it's about making money.

They gave everyone the ability to see each other's statistics (unless you choose to keep your profile private, in which case nobody can copy you). They made the charts simpler, they made it possible to see how risky someone's trading was, how much they'd made since they started trading on the site - month by month. We could see what everyone was trading, and read their posts about why they traded like they did.

Making it all Friendly

In short, they made it easy to go shopping for a nice talented trader. And when you find one, they put a big friendly 'Copy' button, so that you could easily choose to set your account to automatically copy all of that person's future trades. When they buy, you buy, when they sell, you sell. Fully automated - you don't have to do a thing.

Step away from your computer...

You can go on about your daily business, and someone's trading on your behalf... You can choose how much you want to copy them with, and that's how much of your money they will be trading with. If you lose a certain amount (whatever you specify), the system will automatically stop copying that person for you and the remaining money goes back into your trading account to withdraw, or do with as you wish. It's super smart.

No more brokers to deal with

And there's no charge to copy someone. The website gives them incentives the more people copy them. That's the genius right there - they worked out how to make it accessible and attractive. No more old-school brokers, and barriers to entry. No having to deal with people in expensive suits in intimidating offices - they made it something everyone could have a go at.

Check out the other articles and videos on the site - there's a lot of information which should be able to answer more of your questions 🙂

Disclaimer:

All trading involves risk. Only risk capital you’re prepared to lose. Past performance is not an indication of future results. This content is for educational purposes only and is not investment advice. 

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