While forex trading can be a lucrative investment, it can result in huge losses if you don’t have the proper strategy. Developing a winning strategy in trading is time-intensive, and it requires a lot of technical and fundamental analysis.
For many new traders, this complex strategy development process is tedious, and in most cases, it does not guarantee long-term success. It is for this reason that traders are now resorting to copy-trading.
What is Copy Trading?
Copy trading is the simple process of replicating trades made by seasoned, more experienced forex traders. You use a portion of your portfolio to copy specific opening and closing positions of people who have expertise in market dynamics. Copy-trading invests primarily in the knowledge of strategy providers, and it is an efficient technique for people with little to no experience in forex trading.
In copy trading, you are essentially putting all your faith in another person’s expertise. With the high market versatility in forex trading, it is critical to ensure you take a tactical approach. New investors are advised not to risk more than 20% of their portfolio on individual trades to minimize risk.
Like Many trading techniques, copy trading depends on how well you pick the trades you want to replicate. Remember that you are essentially investing in a professional trading strategy, so you need to be careful which traders you copy. Note that most people also don’t have the time to monitor financial markets daily.
Copy-trading allows others to do the trading on your behalf. All you have to do is reap the results, trading Juno Markets Malaysia could help you with it.
Does Copy Trading Work?
The primary advantage of copy trading is that it substantially reduces the many risks attached to manual trading. This trading technique allows you to spread out the risk by using small percentages of your portfolio to copy different trades. In principle, this process enables you to analyze trading patterns and develop a better long-term strategy.
Copy trading is also quite useful, mainly because it consolidates different trading strategies across various market conditions. This advantage increases your flexibility when making trades and gives you a better chance of success.
The reason this type of trading is so efficient is that it utilizes the knowledge of expert traders. New traders don’t have to worry about making uninformed decisions because they replicate trades made by people who know what they are doing. In copy trading, someone else does all the heavy lifting. All you have to do is copy what they do.
Copy Trading Perks and Pitfalls
Advantages
Copy trading is not just about blindly mimicking trades; it also provides a learning curve where new traders can identify expert traders and emulate how they approach the market. It enables these newbies to know when to open/close trades and how to prevent making bad trades.
Unlike manual trading, copy trading is not vulnerable to over-trading or any bad practices that make investors lose their entire trading portfolio. The reason is that a trader only uses a percentage of their total holdings to make a specific trade.
Here are some more advantages of copy trading:
- Copy trading exposes you to a wealth of global expertise. You can monitor and emulate how industry giants trade and make huge profits while at it.
- As the person you copy monitors their trade, they will be doing all the work for you. Essentially, copy trading has zero heavy-lifting.
- Gives you access to a variety of trading strategies
- Provides an easy way for new traders to dip into forex trading with minimal knowledge and experience.
- For traders who want to invest in the long-term, copy trading allows them to follow professional traders keenly and develop a successful strategy.
Disadvantages
- Winning streaks do not last forever. This fact alone makes it strenuous to choose a trader to follow. You may choose a trader with a decent record right before they have a turn of luck.
- As with any other trading technique, it is virtually impossible to predict market dynamics. The usual market risk applies here as well, and even with the best expert advice, the risk of losing is inherent.
Bottom Line
Copy trading is a decent place to start for new traders mainly because it does not need a lot of market research or industry experience. It allows you to trade with minimal risk and learn strategy simultaneously.