Copy trading is the process of copying the trades of experienced traders to an investment account. It allows you to get started with a small capital
Copy trading is the process of copying the trades of experienced traders to an investment account. It allows you to get started with a small capital and turn in profits without the need to dig deep into the intricacies of trading. With copy trading, the managing trader, also called a signal provider, will take care of everything. An investor can just sit back and watch his profit grow. At the same time, the investor keeps full control of his funds and can always limit potential losses by adjusting the maximum acceptable risk
The copy trading concept was first introduced in 2005 when traders engaged in automated trading began to copy specific algorithms. Brokers saw a huge potential of such a copy trading system. It eliminated the need for tracking signals by e-mail or in special trader chats. Since then, copy trading has become very popular.
How copy trading works
The copy trading concept is similar to social or “people-based” trading, where the signal provider sends trading signals. This process involves two stages:
- The signal provider sends signals to a particular intermediary site. Then they go to brokers with whom they concluded a partnership agreement.
- At the second stage, the signals are sent to followers, who can copy them automatically or filter them and select the most profitable signals in their opinion.
Types of copy trading
There are three directions in copy trading:
1. MetaTrader trading platform
The mql5.com website contains all the necessary information on signal providers and statistics. To access trading signals, an investor chooses the type of subscription and starts following signals.
2. Dedicated brokerage service
This type of copy trading is based on paying commission to signal providers, who hold master accounts with the broker. The AMarkets RAMM service is an excellent example.
3. Third-party software that provides trading robots embedded in the platform.
They are also called Expert Advisors, and they use different algorithms that vary in complexity.
Copying trades using signal services
This type of copying implies paying a subscription fee to get the signals. Most brokerages usually offer this service. However, the main disadvantage of this type of copy trading is that an investor has to keep his trading platform running to be able to copy signals.
Investment through PAMM
Another type of copy trading is PAMM accounts. PAMM or Percent Allocation Management Module allows an investor to allocate his funds under management in the desired proportion. The PAMM manager generates income through trading and earns from the changes in currency quotes. Here are some features of this copy trading type.
- First of all, you can get started by investing even a very small amount. The minimum investment amount is usually $100;
- To make sure you generate a stable income, you need to choose a good PAMM manager;
- The managing trader has access to the investor’s funds for the duration of the PAMM agreement;
- An investor cannot interfere with the trading process;
The profit from trading is transferred to the investor’s account, and the manager receives a certain percentage for his work.
Start a profitable copy trading today with Amarket at low cost
A RAMM account is an advanced alternative to PAMM investing. Its main advantage is that it has a built-in risk management system. An investor can copy trades (in RAMM, they are called strategies) from several traders simultaneously. The main features of the RAMM copy trading service are:
- Signals are copied with 100% accuracy;
- Trades are copied using the so-called Factor parameter. It’s a copy multiplication coefficient, which guarantees the profitability of trading even with a small deposit. Trades will be copied proportionally to your investment;
- The investor can adjust the maximum allowed drawdown on his account by setting the acceptable risk level. When this value is reached, the copying process will stop automatically;
- Since the trader gets a part of the investor’s profit, he is interested in the results of his trading;
- The investor can also trade independently;
- Investor funds are not transferred to the trader’s account. The investor keeps complete control over his funds and can pause or stop the copying process and withdraw his money at any time;
Advantages and disadvantages of Copy trading
Copy trading has both pros and cons.
The pros include:
- The ability to invest with no expert knowledge or trading experience;
- An investor can choose the most suitable trading strategy, based on the statistics and the Strategy profitability rating provided by the broker;
- An investor doesn’t need to devote all his time to trading and spend hours assessing the market in search of the best entry points;
- An investor can diversify risks by copying trades from multiple signal providers.
As for the cons, there are not so many:
No matter how experienced the trader is, he may have periods of unsuccessful trading and drawdowns, which, of course, affects the investor’s confidence and his profits;
2. Inability to develop professionally:
By simply copying trades of other traders, an investor doesn’t develop any market analysis skills, and it will be difficult for him to trade on his own in the future;
As you can see, copy trading is a very useful investment tool that can increase the investor’s profit-making opportunities. With the right choice of a signal provider and a managing trader, an investor can generate a steady income. However, copy trading is not a magic wand and cannot protect an investor from risks.